-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rf5QvLEJ418XHShlTFog0hI3994cSO7fJqaOU9gj9C9vfEBkZmrzuo8FAcB5HSpS WDk2oJAdpzdI27QLvAUt/A== 0000950135-97-004630.txt : 19971117 0000950135-97-004630.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950135-97-004630 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14680 FILM NUMBER: 97720240 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-Q 1 GENZYME CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 0-14680 GENZYME CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 06-1047163 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Kendall Square, Cambridge, Massachusetts 02139 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) (617) 252-7500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of common stock as of October 31, 1997: Series Outstanding at October 31, 1997: ------ -------------------------------- Genzyme General Division Common Stock ("GGD Stock") 77,549,484 Genzyme Tissue Repair Division Common Stock ("GTR Stock") 15,862,045 Genzyme Molecular Oncology Division Common Stock ("GMO Stock") 3,929,000 2 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 1997 NOTE REGARDING FORWARD-LOOKING STATEMENTS: This Quarterly Report on Form 10-Q for Genzyme Corporation ("Genzyme" or the "Company") contains forward-looking statements concerning the Company's future revenues, operations and expenditures. These statements represent the expectations of Genzyme's management as of the filing date of this Form 10-Q. The Company's actual results could differ materially from those forward-looking statements due to a number of factors, including (i) the Company's ability to successfully complete preclinical and clinical development and obtain timely regulatory approval and patent and other proprietary rights protection for its products and services, (ii) the content and timing of decisions made by the U.S. Food and Drug Administration (the "FDA") regarding the indications for which the Company's products may be approved, (iii) the actual size of markets to be addressed by the Company's products and services, (iv) market acceptance of the Company's products and services, (v) the Company's ability to obtain reimbursement for its products from third-party payers, where appropriate, (vi) the accuracy of the Company's information concerning the products and competition and (vii) the risks and uncertainties described under the caption, "Factors Affecting Future Operating Results" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (the "1996 Genzyme 10K/A"). 2 3 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 1997 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO. ITEM 1. Financial Statements ------- GENZYME GENERAL Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 4 Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 5 Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 6 Notes to Unaudited Combined Financial Statements............................................................... 7 GENZYME TISSUE REPAIR Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 9 Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 10 Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 11 Notes to Unaudited Combined Financial Statements............................................................... 12 GENZYME MOLECULAR ONCOLOGY Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 13 Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 14 Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 15 Notes to Unaudited Combined Financial Statements............................................................... 16 GENZYME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996..................................... 20 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996......... 21 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996.................... 23 Notes to Unaudited Consolidated Financial Statements........................................................... 24 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 26 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 35 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds ............................................................ 35 ITEM 6. Exhibits and Reports on Form 8-K ..................................................................... 35 Signatures........................................................................................................... 36
3 4 GENZYME GENERAL COMBINED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, - ------------------------------------------------------------------------------------------------------------ 1997 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents ........................................... $ 108,587 $ 77,220 Short-term investments .............................................. 33,494 56,290 Accounts receivable, less allowance for doubtful accounts ........... 117,062 115,156 Inventories ......................................................... 145,557 123,442 Prepaid expenses and other .......................................... 16,557 99,953 Due from Genzyme Tissue Repair ...................................... 1,275 1,604 Due from Genzyme Molecular Oncology ................................. 3,735 -- Deferred tax assets - current ....................................... 17,493 17,493 ---------- ---------- Total current assets .............................................. 443,760 491,158 Property, plant and equipment, net ..................................... 368,801 371,610 Other assets: Long-term investments ............................................... 26,505 38,215 Note receivable from Genzyme Molecular Oncology ..................... 2,524 -- Intangibles, net .................................................... 247,253 247,745 Deferred tax assets - noncurrent .................................... 45,224 42,221 Other ............................................................... 62,835 38,570 ---------- ---------- Total other assets ................................................. 384,341 366,751 ---------- ---------- Total assets ........................................................... $1,196,902 $1,229,519 ========== ========== LIABILITIES AND DIVISION EQUITY Current liabilities: Accounts payable .................................................... $ 16,104 $ 20,522 Accrued expenses .................................................... 60,014 67,645 Income taxes payable ................................................ 26,107 17,926 Deferred revenue .................................................... 2,518 2,693 Current portion of long-term debt and capital lease obligations ..... 683 999 ---------- ---------- Total current liabilities ......................................... 105,426 109,785 Long-term debt and capital lease obligations ........................... 118,183 223,998 Other noncurrent liabilities ........................................... 6,610 11,511 ---------- ---------- Total liabilities .................................................. 230,219 345,294 Division equity ........................................................ 966,683 884,225 ---------- ---------- Total liabilities and division equity .................................. $1,196,902 $1,229,519 ========== ==========
The accompanying notes are an integral part of these unaudited, combined financial statements. 4 5 GENZYME GENERAL COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30, - ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Net product sales .............................................. $ 132,098 $ 117,673 $ 391,890 $ 301,575 Net service sales .............................................. 13,534 16,649 42,585 46,317 Revenues from research and development contracts ............... 3,209 6,700 6,586 18,901 --------- --------- --------- --------- Total revenues ................................................ 148,841 141,022 441,061 366,793 Operating costs and expenses: Cost of products sold .......................................... 42,516 47,911 134,526 110,399 Cost of services sold .......................................... 8,729 12,544 27,024 32,195 Selling, general and administrative ............................ 43,717 35,904 125,390 98,961 Research and development ....................................... 18,484 18,303 54,784 49,854 Amortization of intangibles .................................... 3,127 3,121 9,487 5,657 Purchase of in-process research and development ................ -- 24,170 -- 24,170 Restructuring charges .......................................... -- -- -- 1,465 --------- --------- --------- --------- Total operating costs and expenses ............................ 116,573 141,953 351,211 322,701 --------- --------- --------- --------- Operating income (loss) ............................................ 32,268 (931) 89,850 44,092 Other income (expenses): Equity in net loss of unconsolidated affiliates ................ (1,744) 470 (2,597) (1,588) Gain on investments ............................................ -- -- -- 1,711 Investment income .............................................. 2,401 3,341 7,313 11,485 Interest expense ............................................... (2,006) (3,187) (6,006) (3,582) --------- --------- --------- --------- Total other income (expenses) ................................. (1,349) 624 (1,290) 8,026 --------- --------- --------- --------- Income (loss) before income taxes .................................. 30,919 (307) 88,560 52,118 Provision for income taxes ......................................... (11,922) (9,574) (34,081) (30,483) --------- --------- --------- --------- Net income (loss) .................................................. 18,997 (9,881) 54,479 21,635 Allocated tax benefit generated by Genzyme Tissue Repair ........... 4,240 3,973 13,078 11,775 Allocated tax benefit generated by Genzyme Molecular Oncology ...... 1,120 -- 1,321 -- --------- --------- --------- --------- Net income (loss) attributable to Genzyme General Stock ............ $ 24,357 $ (5,908) $ 68,878 $ 33,410 ========= ========= ========= ========= Income per Genzyme General common and common equivalent share: Net income (loss) .............................................. $ 0.31 $ (0.09) $ 0.88 $ 0.46 ========= ========= ========= ========= Average shares outstanding ..................................... 79,446 69,440 78,604 73,024 ========= ========= ========= ========= Income per Genzyme General common share assuming full dilution: Net income (loss) .............................................. $ 0.30 $ (0.09) $ 0.87 $ 0.45 ========= ========= ========= ========= Average fully diluted shares outstanding ....................... 79,865 69,440 78,964 74,146 ========= ========= ========= =========
The accompanying notes are an integral part of these unaudited, combined financial statements. 5 6 GENZYME GENERAL COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, - ----------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net income ............................................................ $ 54,479 $ 21,635 Reconciliation of net income to net cash from operating activities: Depreciation and amortization ....................................... 27,113 20,262 Provision for bad debts ............................................. 5,052 5,752 (Gain) loss on sale of investment ................................... 2 (973) Accrued interest/amortization on bonds .............................. 889 259 Equity in net loss of unconsolidated affiliates ..................... 2,597 1,588 Other ............................................................... 451 (16) Non-cash charge for in-process technology ........................... -- 24,170 Increase (decrease) in cash from changes in working capital: Accounts receivable ............................................... (10,843) (14,944) Inventories ....................................................... (22,242) (29,715) Prepaid expenses and other ........................................ (2,585) (3,050) Accounts payable, accrued expenses, income taxes payable and deferred revenue ................................................ 6,502 37,015 Due from Genzyme Tissue Repair .................................... 329 (1,535) Due from Genzyme Molecular Oncology ............................... (311) -- --------- --------- Net cash provided by operating activities ....................... 61,433 60,448 INVESTING ACTIVITIES: Investment in unconsolidated affiliate ................................ (3,044) (3,600) Loans to affiliate .................................................... -- (1,676) Acquisition of DSP, net of acquired cash .............................. -- (194,497) Purchases of investments .............................................. (25,424) (74,453) Sales and maturities of investments ................................... 59,245 122,923 Purchases of property, plant and equipment ............................ (24,961) (27,931) Other assets and other liabilities .................................... (30,313) (16,469) --------- --------- Net cash used by investing activities ........................... (24,497) (195,703) FINANCING ACTIVITIES: Cash allocated to Genzyme Tissue Repair ............................... (14,899) (10,000) Cash allocated to Genzyme Molecular Oncology .......................... (5,000) -- Proceeds from issuance of Genzyme General Stock ....................... 117,604 21,816 Proceeds from issuance of debt ........................................ -- 200,000 Payments of debt and capital lease obligations ........................ (100,881) (64,523) --------- --------- Net cash used by provided by financing activities ............... (3,176) 147,293 --------- --------- Effect of exchange rate changes on cash .................................. (2,393) 1,212 --------- --------- Increase in cash and cash equivalents .................................... 31,367 13,250 Cash and cash equivalents, beginning of period ........................... 77,220 103,631 --------- --------- Cash and cash equivalents, end of period ................................. $ 108,587 $ 116,881 ========= =========
The accompanying notes are an integral part of these unaudited, combined financial statements. 6 7 GENZYME GENERAL NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited, combined financial statements should be read in conjunction with the 1996 Genzyme 10-K/A and the financial statements and footnotes for Genzyme and Genzyme General Division ("Genzyme General") included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. The financial statements for the three and nine months ended September 30, 1997 and 1996 are unaudited but include, in management's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. INVENTORIES (IN THOUSANDS)
September 30, 1997 December 31, 1996 ------------------ ----------------- Raw materials ...................... $ 40,429 $ 30,243 Work-in-process .................... 35,422 36,516 Finished products .................. 69,706 56,683 -------- -------- $145,557 $123,442 ======== ========
3. ALLOCATIONS BY GENZYME GENERAL TO GENZYME TISSUE REPAIR DIVISION ("GENZYME TISSUE REPAIR" or "GTR") In the nine months ended September 30, 1997, Genzyme General allocated $5.1 million to GTR to fund GTR's investment in Diacrin/Genzyme LLC, a joint venture with Diacrin, Inc. ("Diacrin"), in exchange for 489,810 shares of GTR stock which have been reserved for issuance at the Genzyme Board of Directors' (the "Genzyme Board") discretion for the benefit of Genzyme General or its stockholders ("GTR Designated Shares"). 4. PROVISION FOR INCOME TAXES The tax provisions for the three and nine months ended September 30, 1997 vary from the U.S. statutory tax rate because of the provision for state income taxes, nondeductible amortization of intangibles, Genzyme General's share of losses of unconsolidated affiliates and taxes on foreign earnings. The effective tax rate was 38.6% and 38.5% for the three and nine months ended September 30, 1997, respectively, a slight decrease over the corresponding periods in 1996. The allocated tax benefits generated by GTR and Genzyme Molecular Oncology Division ("Genzyme Molecular Oncology" or "GMO") combined for the three and nine months ended September 30, 1997 of $5.4 million and $14.4 million, respectively, reduced Genzyme General's tax rate to 21.2% and 22.2%, respectively. 5. NEW ACCOUNTING PRONOUNCEMENT In February 1997, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing net income per share ("EPS") than is currently required under the provisions of Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, Genzyme will be required to present both basic EPS and diluted EPS attributable to GGD Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Basic EPS for Genzyme General for the quarter ended September 30, 1997 and September 30, 1996, would have been $0.32 and $(0.09), respectively, and $0.90 and $0.49 for the nine months ended September 30, 1997 and 1996, respectively. The impact of SFAS No. 128 on the calculation of diluted EPS for these quarters is not expected to be materially different than fully diluted EPS. Genzyme will adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical EPS data presented will be restated to conform to the provisions of SFAS No. 128. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the "Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively. Application of the Statement's disclosure requirements will have no impact on Genzyme General's combined financial position, results of operations or earnings per share data as currently reported. 7 8 6. DISTRIBUTION OF GTR DESIGNATED SHARES As of June 30, 1997, 3,160,939 GTR Designated shares had been reserved for issuance by the Genzyme Board on behalf of Genzyme General or its stockholders as a result of cash and other assets allocated from Genzyme General to GTR since GTR's inception, of which 466,501 shares represent the remaining shares reserved for issuance upon the exercise of Genzyme General options and warrants outstanding at December 14, 1994, ("GTR Date of Inception"). On June 30, 1997, the Genzyme Board declared a dividend of 2,685,941 GTR Designated Stares which were distributed on July 22, 1997 to Genzyme General stockholders of record as of July 11, 1997, in a tax-free distribution of approximately .03 share of GTR Stock for each share of GGD Stock owned. In total, 2,294,613 shares of GTR Stock were issued to Genzyme General Stockholders in the distribution and 391,328 shares of GTR Stock have been reserved for issuance upon the exercise of GGD Stock options and warrants outstanding on the record date. As of September 30, 1997, 911,821 GTR Designated Shares remain reserved for issuance by the Genzyme Board on behalf of Genzyme General or its stockholders, of which 812,130 shares represent the shares reserved for issuance upon the exercise of certain GGD stock option and warrants. 7. INVESTMENT IN ABIOMED, INC. In July 1997, Genzyme General purchased 1,153,846 shares of ABIOMED, Inc. common stock for $13.00 per share for an aggregate investment of $14,999,998. As a result of the investment, Genzyme owns approximately 14% of ABIOMED, Inc. 8. JOINT VENTURE WITH GENZYME TRANSGENICS CORPORATION ("GTC") Pursuant to the Convertible Debt and Development Funding Agreement between Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme General has been funding GTC's development of transgenic antithrombin III ("ATIII"), a plasma protein that helps regulate blood clotting, since April 1, 1996. In June 1997, Genzyme and GTC announced that an agreement in principle had been reached on the key terms of a joint venture for further development, marketing and distribution of transgenic ATIII worldwide, excluding Asia. Genzyme General will provide 70% of the development costs up to a maximum of $33.0 million. GTC will fund the remaining 30% of the development costs. Both companies will fund equally any costs in excess of that level, and profits will be split equally. 9. GMO PRIVATE PLACEMENT In August 1997, GMO completed a private placement of $20.0 million convertible debentures (the "GMO Debentures"). The GMO Debentures bear interest at 6% per annum and are convertible into shares of GMO Stock beginning no earlier than the 91st day after the completion of an initial public offering of shares of GMO Stock (the "GMO IPO"). Beginning on February 26, 1998, the GMO Debentures will be convertible at a discount to the average of the closing bid prices of GMO Stock as reported by the Nasdaq National Market for the 20 trading days immediately preceding the applicable conversion date (the "Market Price"), which discount begins at 7% and will increase by an additional one percent every 30 days thereafter until October 24, 1998. Beginning November 23, 1998, the conversion price will be the lower of (i) 85% of the Market Price calculated as of the actual conversion date and (ii) 85% of the Market Price calculated as of November 22, 1998. In no event, however, will the conversion price be less than $7.70 per share (subject to adjustment in the event of any stock split, stock dividend, reclassification, combination or similar event). In the third quarter of 1997, GMO recorded $16,5 million of proceeds attributed to the value of the debt and $3.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $16.5 million will be accreted to the face value by a charge to interest expense over the term of the initial 15 month conversion period. EXCHANGE OPTION. If GMO has not completed the GMO IPO by August 29, 1998, at the holder's option, the GMO Debentures may be exchanged for a 5% convertible debenture issued by Genzyme General (the "GGD Debentures") due August 29, 2003. If the GMO IPO is completed before August 29, 1998 but the aggregate proceeds from the offering are less than $15.0 million or GMO's market capitalization is below $90.0 million, at the holder's option, 50% of the GMO Debentures can be exchanged for GGD Debentures. The exchange option must be exercised within 30 business days after August 29, 1998 or the date on which the GMO IPO is consummated. The GGD Debentures, if issued, will be convertible at the option of the holder at any time prior to maturity into shares of GGD Stock at a 13% premium to the average closing bid price of GGD Stock or reported by the Nasdaq National Market for the five trading days immediately preceding the issue date. 8 9 GENZYME TISSUE REPAIR COMBINED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, - ----------------------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ........................................ $13,925 $16,230 Accounts receivable, less allowance for doubtful accounts ........ 2,266 1,677 Inventories ...................................................... 1,375 1,823 Prepaid expenses and other ....................................... 218 334 ------- ------- Total current assets ............................................. 17,784 20,064 Property, plant and equipment, net ............................... 20,016 22,229 Other ............................................................ 929 300 ------- ------- Total assets ..................................................... $38,729 $42,593 ======= ======= LIABILITIES AND DIVISION EQUITY Current liabilities: Accounts payable .............................................. $ 1,289 $ 1,749 Accrued expenses .............................................. 2,829 2,479 Payable to Genzyme General .................................... 1,275 1,604 ------- ------- Total current liabilities ................................... 5,393 5,832 Long-term debt ................................................... 30,566 18,000 Other noncurrent liabilities ..................................... 565 677 ------- ------- Total liabilities ............................................ 36,524 24,509 Division equity .................................................. 2,205 18,084 ------- ------- Total liabilities and division equity ............................ $38,729 $42,593 ======= =======
The accompanying notes are an integral part of these unaudited, combined financial statements. 9 10 GENZYME TISSUE REPAIR COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30, - ------------------------------------------------------------------------------------------------------------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Net service sales .......................... $ 3,077 $ 1,861 $ 7,718 $ 5,222 Operating costs and expenses: Cost of services sold ...................... 2,975 2,516 8,966 8,398 Selling, general and administrative ........ 6,390 6,638 19,048 19,614 Research and development ................... 2,664 2,935 7,660 7,639 -------- -------- -------- -------- Total operating costs and expenses ........ 12,029 12,089 35,674 35,651 -------- -------- -------- -------- Operating loss ................................. (8,952) (10,228) (27,956) (30,429) Other income (expenses): Interest income ............................ 251 297 649 1,261 Interest expense ........................... (801) (1) (2,039) (6) Equity in loss of joint venture ............ (1,529) -- (4,945) -- -------- -------- -------- -------- Total other income (expenses) ............. (2,079) 296 (6,335) 1,255 -------- -------- -------- -------- Net loss ....................................... $(11,031) $ (9,932) $(34,291) $(29,174) ======== ======== ======== ======== Per Genzyme Tissue Repair common share: Net loss ................................... $ (0.72) $ (0.78) $ (2.47) $ (2.33) ======== ======== ======== ======== Average shares outstanding ................. 15,220 12,711 13,879 12,511 ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited, combined financial statements. 10 11 ] GENZYME TISSUE REPAIR COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, - ------------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net loss ................................................................... $(34,291) $(29,174) Reconciliation of net loss to net cash used by operating activities: Depreciation and amortization ............................................ 1,739 521 Provision for bad debts .................................................. 330 173 Accretion of debt discount ............................................... 711 -- Equity in net loss of joint venture ...................................... 4,945 -- Other .................................................................... 207 25 Increase (decrease) in cash from working capital: Accounts receivable .................................................... (919) (143) Inventories ............................................................ 449 (928) Prepaid expenses and other ............................................. 116 (159) Accounts payable, accrued expenses and deferred revenue ................ 110 (132) Due to Genzyme General ................................................. (329) 1,535 -------- -------- Net cash used by operating activities ................................ (26,932) (28,282) INVESTING ACTIVITIES: Purchases of investments ................................................... -- (5,004) Sales and maturities of investments ........................................ -- 9,762 Investment in unconsolidated affiliate ..................................... (5,066) -- Purchases of property, plant and equipment ................................. (120) (25,070) Sale of property, plant and equipment ...................................... 349 5,214 Other assets and other liabilities ......................................... (264) 205 -------- -------- Net cash used by investing activities ............................... (5,101) (14,893) FINANCING ACTIVITIES: Proceeds from issuance of GTR Stock ........................................ 1,829 2,268 Proceeds from issuance of debt ............................................. 13,000 38,000 Payments of debt and capital lease obligations ............................. -- (23,169) Cash allocated from Genzyme General ........................................ 14,899 10,000 Other ...................................................................... -- (24) -------- -------- Net cash provided by financing activities ............................ 29,728 27,075 -------- -------- Decrease in cash and cash equivalents ......................................... (2,305) (16,100) Cash and cash equivalents, beginning of period ................................ 16,230 40,741 -------- -------- Cash and cash equivalents, end of period ...................................... $ 13,925 $ 24,641 ======== ========
The accompanying notes are an integral part of these unaudited, combined financial statements. 11 12 GENZYME TISSUE REPAIR NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited, combined financial statements should be read in conjunction with the 1996 Genzyme 10-K/A and the financial statements and footnotes for Genzyme and GTR included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. The financial statements for the three and nine months ended September 30, 1997 and 1996 are unaudited but include, in management's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. INVENTORIES (IN THOUSANDS)
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ ----------------- Raw materials...................... $ 224 $ 136 Work-in-process.................... 1,151 1,687 ------- ------- $ 1,375 $ 1,823 ======= =======
3. ALLOCATION BY GENZYME GENERAL TO GTR In the nine months ended September 30, 1997, Genzyme General allocated a total of $5.1 million to GTR to fund GTR's participation in Diacrin/Genzyme LLC, a joint venture with Diacrin, in exchange for 489,810 GTR Designated Shares. See Note 5, Distribution of GTR Designated Shares. 4. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing EPS than is currently required under the provisions of APB 15. Under SFAS No. 128, Genzyme will be required to present both basic EPS and diluted EPS attributable to GTR Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Basic EPS data for GTR for the three and nine months ended September 30, 1997 and September 30, 1996 would have been the same as EPS for each respective period computed under the provisions of APB 15. The impact of SFAS No. 128 on the calculation of diluted EPS for the periods presented is not expected to be material. Genzyme plans to adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical EPS data presented will be restated to conform to the provisions of SFAS No. 128. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130"), and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the "Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively. Application of the Statement's disclosure requirements will have no impact on Genzyme Tissue Repair's combined financial position, results of operations or earnings per share data as currently reported. 5. DISTRIBUTION OF GTR DESIGNATED SHARES As of June 30, 1997, 3,160,939 GTR Designated Shares had been reserved for issuance by the Genzyme Board on behalf of Genzyme General or its stockholders as a result of cash and other assets allocated from Genzyme General to GTR since GTR's inception, of which 466,501 shares represent the remaining shares reserved for issuance upon the exercise of Genzyme General options and warrants outstanding at the GTR Date of Inception. On June 30, 1997, the Genzyme Board declared a dividend of 2,685,941 GTR Designated Shares which were distributed on July 22, 1997 to Genzyme General stockholders of record as of July 11, 1997, in a tax-free distribution of approximately .03 share of GTR Stock for each share of GGD Stock owned. In total, 2,294,613 shares of GTR Stock were issued to Genzyme General Stockholders in the distribution and 391,328 shares of GTR Stock have been reserved for issuance upon the exercise of GGD Stock options and warrants outstanding on the record date. As of September 30, 1997, 911,821 GTR Designated Shares remain reserved for issuance by the Genzyme Board or its stockholders, of which 812,130 shares represent the remaining shares reserved for issuance upon the exercise of certain GGD Stock options and warrants. 6. SUBSEQUENT EVENT GENZYME TISSUE REPAIR FOLLOW-ON COMMON STOCK OFFERING In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public for $7.75 per share. Net proceeds from the offering after underwriting discounts and commissions were $29.2 million. 12 13 GENZYME MOLECULAR ONCOLOGY COMBINED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, - ------------------------------------------------------------------------------------------ 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ................................... $21,431 $ -- Other ....................................................... 308 -- ------- ------- Total current assets ...................................... 21,739 -- Property, plant and equipment, net ............................. 182 -- Intangibles, net ............................................... 33,863 -- Other .......................................................... 700 -- ------- ------- Total assets ................................................... $56,484 $ -- ======= ======= LIABILITIES AND DIVISION EQUITY Current liabilities: Accounts payable ............................................ $ 26 $ -- Accrued expenses ............................................ 1,448 -- Payable to Genzyme General .................................. 3,735 -- ------- ------- Total current liabilities ................................... 5,209 -- Long-term debt ................................................. 20,887 -- Deferred tax liability ......................................... 7,170 Note payable to Genzyme General ................................ 2,524 Other noncurrent liabilities ................................... 480 -- ------- ------- Total liabilities .......................................... 36,270 -- Division equity ................................................ 20,214 -- Parent company investment - Genzyme General .................... -- 1,504 Accumulated deficit ............................................ -- (1,504) ------- ------- Total division equity ...................................... 20,214 -- ------- ------- Total liabilities and division equity .......................... $56,484 $ -- ======= =======
The accompanying notes are an integral part of these unaudited, combined financial statements. 13 14 GENZYME MOLECULAR ONCOLOGY COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30, - ------------------------------------------------------------------------------------------------------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Net service sales .................................. $ 83 $ -- $ 83 $ -- Revenue from research and development contracts .... 93 -- 93 -- -------- -------- -------- -------- Total revenues: .................................. 176 -- 176 -- Operating costs and expenses: Cost of revenue .................................... 106 -- 106 -- Selling, general and administrative ................ 537 51 812 129 Research and development ........................... 1,622 189 3,171 559 Amortization of intangibles ........................ 1,768 -- 1,996 -- Charge for in-process technology ................... -- -- 7,000 -- -------- -------- -------- -------- Total operating costs and expenses ................ 4,033 240 13,085 688 -------- -------- -------- -------- Operating loss ......................................... (3,857) (240) (12,909) (688) Other income (expenses): Equity in net loss of joint venture .................... (128) -- (128) -- Interest income ........................................ 172 -- 172 -- Interest expense ....................................... (481) -- (498) -- -------- -------- -------- -------- Total other income (expenses) ..................... (437) -- (454) -- -------- -------- -------- -------- Loss before income taxes ............................... (4,294) (240) (13,363) (688) Deferred tax benefit ................................... 380 -- 430 -- -------- -------- -------- -------- Net loss ............................................... $ (3,914) $ (240) $(12,933) $ (688) ======== ======== ======== ======== Per Genzyme Molecular Oncology common share: Net loss ........................................... $ (1.00) ======== Average shares outstanding ......................... 3,929 ======== Pro Forma per Genzyme Molecular Oncology common share: Pro forma net loss ................................. $ (3.29) ======== Pro forma shares outstanding ....................... 3,929 ========
The accompanying notes are an integral part of these unaudited, combined financial statements. 14 15 GENZYME MOLECULAR ONCOLOGY COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net loss ........................................................... $(12,933) $(1,504) Reconciliation of net loss to net cash used by operating activities: Depreciation and amortization .................................... 2,022 -- Amortization of deferred taxes ................................... (430) -- Accretion of debt discount ....................................... 251 -- Charge for in-process technology ................................. 7,000 -- Equity in net loss of joint venture .............................. 128 -- Increase (decrease) in cash from working capital changes: Other current assets ........................................... (298) -- Accounts payable and accrued expenses .......................... (214) -- Due to Genzyme General ......................................... 311 -- -------- ------- Net cash used by operating activities ....................... (4,163) (1,504) INVESTING ACTIVITIES: Investment in unconsolidated affiliate ............................. (724) -- Other assets and liabilities ....................................... 41 -- Acquisition of PharmaGenics, Inc. net of acquired cash ............. 9 -- -------- ------- Net cash (used by) investing activities ..................... (674) -- FINANCING ACTIVITIES: Proceeds from issuance of warrants ................................. 724 -- Allocation of debt from Genzyme General ............................ 5,000 -- Proceeds from issuance of convertible debenture, net ............... 19,150 -- Parent company investment - Genzyme General ........................ 1,394 1,504 -------- ------- Net cash provided by financing activities ................... 26,268 1,504 -------- ------- Increase in cash and cash equivalents ................................. 21,431 0 Cash and cash equivalents, beginning of period ........................ -- -- -------- ------- Cash and cash equivalents, end of period .............................. $ 21,431 $ 0 ======== =======
Supplemental disclosure of noncash transaction: Acquisition of PharmaGenis, Inc. -- See Note 2 The accompanying notes are an integral part of these unaudited, combined financial statements. 15 16 GENZYME MOLECULAR ONCOLOGY NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited combined financial statements should be read in conjunction with the Company's Registration Statement on Form S-4 (Registration No. 333-26351) and the financial statements and footnotes of GMO included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. The financial statements for the three and nine months ended September 30, 1997 and 1996 are unaudited but include, in management's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. PHARMAGENICS MERGER The merger of PharmaGenics, Inc. ("PharmaGenics"), with and into Genzyme (the "Merger") was consummated on June 18, 1997. In connection with the Merger, Genzyme established GMO, a new division of Genzyme, which consists of all of PharmaGenics's business, several programs previously allocated to Genzyme General in the area of molecular oncology and Genzyme's rights under agreements with third parties relating to gene therapies for the treatment of cancer. As compensation to Genzyme General for its contribution to GMO, 6,000,000 shares of GMO Stock have been reserved for issuance at the discretion of the Genzyme Board for the benefit of Genzyme General or its stockholders ("GMO Designated Shares"). The Genzyme Board may issue the GMO Designated Shares as a stock dividend to the holders of GGD Stock or it may sell such shares in a public or private sale and allocate all of the proceeds to Genzyme General. Genzyme's management and accounting policies require Genzyme to distribute GMO Designated Shares to holders of GGD Stock on the later of November 30, 1998 or 360 days following completion of an initial public offering of shares of GMO Stock, although the Genzyme Board may elect to distribute these shares at any time. The aggregate purchase price of $27.5 million (net of $0.5 million which represents the fees payable by PharmaGenics in connection with the Merger), plus acquisition costs of $2.6 million and assumed liabilities of $5.4 million has been allocated to the acquired tangible and intangible assets based on their respective fair values (amounts in thousands):
Property, plant & equipment .................................$ 208 Other assets ................................................ 50 Completed technology rights (to be amortized over 5 years)... 20,000 Goodwill (to be amortized over 5 years)...................... 15,859 Deferred tax liability (to be amortized over 5 years)........ (7,600) In-process technology........................................ 7,000 ------- $35,517 =======
The $7.0 million allocated to in-process technology represents the value assigned to PharmaGenics's programs which are still in the development stage and for which there is no alternative use. The value assigned to these programs (both complete and in-process) has been determined by selecting the maximum anticipated value of these programs, as provided by an independent valuation of the PharmaGenics business, based on comparable technologies. The amount allocated to in-process technology was charged to operations in June 1997, the period in which the Merger was consummated. The deferred tax liability of $7.6 million results from the temporary difference between the book and tax basis of the completed technology computed at a 38.0% incremental tax rate. As of the date of the Merger, PharmaGenics had borrowed $2.5 million from Genzyme under a credit facility (the "PharmaGenics Note") which Genzyme had made available to PharmaGenics to fund PharmaGenics's documented operating costs. Upon consummation of the Merger, the PharmaGenics Note became a liability allocated to GMO and the $2.5 million of outstanding principal is considered an intracompany loan by Genzyme General to GMO due on February 10, 2002 and convertible at any time prior thereto, at the Genzyme Board's option, into GMO Designated Shares. The number of GMO Designated Shares resulting from any conversion of the PharmaGenics Note will be determined by dividing the principal and interest being converted by the conversion price (the "GMO Conversion Price") in effect on the date of conversion. The initial GMO Conversion Price will be determined upon the closing of the first public offering of GMO securities in which the aggregate gross proceeds to GMO equal or exceed $10.0 million (an "Offering"), and will be equal to (i) the per share price of the GMO Stock sold in the Offering or, if GMO Stock is not sold in the Offering, (ii) the initial conversion price of the security convertible into GMO Stock that is sold in the Offering, provided that if 16 17 any portion of the PharmaGenics Note is converted prior to any Offering, the initial GMO Conversion Price is $7.00. The GMO Conversion Price is subject to adjustment upon declaration of any stock dividend or on completion of any subdivision or combination of the GMO Stock. If the Merger had taken place on January 1, 1996, after giving effect to adjustments for increased amortization, increased interest expense, the tax benefit from the amortization of the deferred tax liability and the one time charge for in-process technology, the pro forma revenues, net loss and net loss per share for GMO would have been the following (amounts in thousands, except per share amounts):
Nine Months Ended September 30, ------------------------------ 1997 1996 ---- ---- Pro forma revenues .......................... $ 251 $(1,005) ======= ======= Pro forma net loss .......................... (22,013) (8,232) ======= ======= Pro forma net loss per share ................ (5.60) (2.10) ======= ======= Pro forma weighted average shares outstanding 3,929 3,929 ======= =======
3. NET LOSS PER SHARE Historical loss per share information is presented for the three months ended September 30, 1997 but is omitted for the nine months ended September 30, 1997 as there were no shares of GMO Stock outstanding prior to June 18, 1997. Pro forma net loss per share is disclosed for the nine months ended September 30, 1997. The pro forma shares outstanding represent the shares of Stock issued to effect the Merger. 4. REVOLVING CREDIT FACILITY Genzyme has a revolving credit facility (the "Revolving Credit Facility") with a syndicate of commercial banks administered by Fleet National Bank in the amount of $225.0 million. Amounts drawn under this facility may be allocated to Genzyme General, GTR or GMO. As of September 30, 1997, GMO had $5.0 million of debt outstanding under the Revolving Credit Facility 5. NEW ACCOUNTING PRONOUNCEMENT In February 1997, The FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing EPS than is currently required under the provisions of APB 15. Under SFAS No. 128, Genzyme will be required to present both basic EPS and diluted EPS attributable to GMO Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Pro forma basic EPS data for GMO for the three and nine months ended September 30, 1997 and 1996 would have been the same as pro forma EPS for each respective period computed under the provisions of APB 15. The impact of SFAS No. 128 on the calculation of diluted EPS for the periods presented is not expected to be material. Genzyme will adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical EPS data presented will be restated to conform to the provisions of SFAS No. 128. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131. "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the "Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively. Application of the Statements' disclosure requirements will have no impact on Genzyme Molecular Oncology's combined financial position, results of operations or earnings per share data as currently reported. 6. STRESSGEN/GENZYME LLC In July 1997, StressGen/Genzyme LLC was established as a joint venture among Genzyme, StressGen Biotechnologies Corp. ("StressGen") and the Canadian Medical Discoveries Fund Inc. ("CMDF") to develop stress gene therapies for the treatment of cancer. CMDF provided $10.0 million (Canadian) in funding in connection with the joint venture through the combination of a capital contribution to StressGen/Genzyme LLC in the amount of $1.0 million (Canadian), the purchase of warrants from Genzyme in the amount of $1.0 million (Canadian), the purchase of warrants and preferred stock from StressGen in the amount of $1.4 million (Canadian) and a limited recourse loan bearing interest at 0.125% per annum to StressGen in the amount of $6.6 million (Canadian). Each of Genzyme and StressGen (through a U.S. subsidiary) also made a capital contribution to StressGen/Genzyme LLC in the amount of $1.0 million (Canadian) and a limited recourse loan was made by the U.S. subsidiary of StressGen to StressGen/Genzyme LLC in the amount of $7.0 million (Canadian). In addition, Genzyme and StressGen have agreed to provide in equal shares any additional capital required by the joint venture in excess of the initial $10.0 million (Canadian) funding. 17 18 GENZYME MOLECULAR ONCOLOGY NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS Genzyme and StressGen have an option (the "Purchase Option"), payable in equal shares, to purchase CMDF's membership interest in StressGen/Genzyme LLC at any time during the three-year period beginning July 31, 1999 and ending July 31, 2002. The exercise price of the Purchase Option initially will be $15.6 million (Canadian) in July 1999 and will increase monthly thereafter to a final exercise price of $30.5 million (Canadian) in July 2002. The limited recourse loan made by CMDF will be retired in connection with the exercise of the Purchase Option. If the Purchase Option is not exercised on or before July 31, 2002, CMDF may require Genzyme and StressGen to effectively repay $2.0 million (Canadian) each of the limited recourse loan. In addition, at any time during the 30-day period commencing on the date when not less than 75% of the initial funding provided by CMDF has been spent by the joint venture, but in no event later than July 31, 1999, CMDF shall have the right (the "Mandatory Purchase Right") to require Genzyme and StressGen to purchase its membership interest at an aggregate purchase price of $10.0 million (Canadian) plus interest thereon at a rate per annum equal to the Canadian prime rate plus 1%. The Mandatory Purchase Right will terminate if not exercised by CMDF during such 30-day period. Genzyme's share of any amounts payable to CMDF upon exercise of the Purchase Option, the Mandatory Purchase Right or repayment of the limited recourse loan may be paid in cash, Genzyme common stock or any combination thereof at the discretion of Genzyme. Prior to the repurchase of CMDF's membership interest in StressGen/Genzyme LLC, profits from the joint venture will be shared in proportion to the capital contributions of the three parties. Following the repurchase of CMDF's membership interest, profits will be shared equally by StressGen and Genzyme. However, GMO records 50% of the net operating losses of the joint venture due to the Mandatory Purchase Right. Accordingly, for the nine months ended September 30, 1997, GMO recorded $128,000 of equity in loss of the joint venture. GMO recorded $93,000 of revenue related to research and development services billed to StressGen/Genzyme LLC. Genzyme sold three warrants (the "Front-End Warrant", the "NDA Warrant", and the "Callable Warrant", collectively, the "Warrants") to purchase Genzyme common stock to CMDF for an aggregate purchase price of $1.0 million (Canadian). Each warrant is initially exercisable for up to 40,000 shares of GGD Stock and will be converted automatically upon the closing date of the GMO IPO into warrants to purchase shares of GMO Stock as follows: The Front-End Warrant is exercisable immediately and will terminate upon the earlier of the exercise of the Mandatory Purchase Right by CMDF or July 31, 2002. The exercise price of the Front-End Warrant is $30.18 per share of GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of a defined conversion price. The NDA Warrant will be exercisable during the one-year period following the filing of the first new drug application with the FDA for a product developed through the collaboration and will terminate upon the earliest of the exercise of the Mandatory Purchase Right by CMDF, the expiration of the Purchase Option or July 31, 2007. The exercise price of the NDA Warrants is $30.18 per share of GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of a defined conversion price. The Callable Warrant will be exercisable during the three-year period following the expiration of the Purchase Option and will terminate upon the earliest of the exercise of the Mandatory Purchase Right by CMDF, the exercise of the Purchase Option or July 31, 2005. The exercise price of the Callable Warrant per share of GGD Stock will be equal to the average of the closing sale prices of the GGD Stock on the Nasdaq National Market for the 20 trading days ending on the expiration date of the Purchase Option, and upon conversion following the GMO IPO, will be equal to the average of closing sale prices of the GMO Stock on the Nasdaq National Market for the 20 trading days ending on the expiration date of the Purchase Option. 18 19 7. GMO PRIVATE PLACEMENT In August 1997, GMO completed a private placement of the GMO Debentures. The GMO Debentures bear interest at 6% per annum and are convertible into shares of GMO Stock beginning no earlier than the 91st day after the completion of the GMO IPO. Beginning on February 26, 1998, the GMO Debentures will be convertible at a discount to the average of the closing bid prices of GMO Stock as reported by the Nasdaq National Market for the 20 trading days immediately preceding the applicable conversion date (the "Market Price"), which discount begins at 7% and will increase by an additional one percent every 30 days thereafter until October 24, 1998. Beginning November 23, 1998, the conversion price will be the lower of (i) 85% of the Market Price calculated as of the actual conversion date and (ii) 85% of the Market Price calculated as of November 22, 1998 (the "Fixed Conversion Price"). In no event, however, will the conversion price be less than %7.70 per share (subject to adjustment in the event of any stock split, stock dividend, reclassification, combination or similar event). In the third quarter of 1997, GMO recorded $16.5 million of proceeds attributed to the value of the debt and $3.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $16.5 million will be accreted to the face value of the debt by a charge to interest expense over the term of the initial 15 month conversion period. EXCHANGE OPTION IF GMO has not completed the GMO IPO by August 29, 1998, at the holder's option, the GMO Debentures may be exchanged for GGD Debentures due August 29, 2003. If the GMO IPO is completed before August 29, 1998 but the aggregate proceeds from the offering are less than $15.0 million or GMO's market capitalization is below $90.0 million, at the holder's option, 50% of the GMO Debentures can be exchanged for GGD Debentures. The exchange option must be exercised within 30 business days after the earlier of August 29, 1998 or the date on which the GMO IPO is consummated. The GGD Debentures, if issued, will be convertible at the option of the holder at any time prior to maturity into shares of GGD Stock at a 13% premium to the average closing bid price of GGD Stock or reported by the Nasdaq National Market for the five trading days immediately preceding the issue date. PUT OPTION If at any time after the 180 day period after completion of the GMO IPO, the conversion price is less than the floor conversion price of $7.70 for every trading day during the Put Review Period, the holder will have the option over the Put Exercise Period to put the GMO Debentures back to GMO for cash compensation. The holder has three options to exercise the put. The first Put Review Period may not commence until 180 days after completion of the GMO IPO. The Put Review Period for the second and third options (assuming the first has occurred) may only commence 90 days after the previous Put Exercise Period has expired. CALL OPTION The GMO Debentures are callable with cash or stock beginning 18 months after the GMO IPO if the stock has closed at 150% of the Fixed Conversion Price for 20 consecutive trading days. 19 20 GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, - ------------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ............................................. $ 143,943 $ 93,450 Short-term investments ................................................ 33,494 56,290 Accounts receivable, less allowance for doubtful accounts ............. 119,328 116,833 Inventories ........................................................... 146,932 125,265 Prepaid expenses and other current assets ............................. 17,083 100,287 Deferred tax assets - current ......................................... 17,493 17,493 ----------- ----------- Total current assets ................................................ 478,273 509,618 Property, plant and equipment, net ....................................... 388,999 393,839 Long-term investments .................................................... 26,505 38,215 Intangibles, net of accumulated amortization ............................. 278,361 247,745 Deferred tax assets - noncurrent ......................................... 38,054 42,221 Other .................................................................... 64,464 38,870 ----------- ----------- Total assets ............................................................. $ 1,274,656 $ 1,270,508 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ...................................................... $ 17,419 $ 22,271 Accrued expenses ...................................................... 64,291 70,124 Income taxes payable .................................................. 26,107 17,926 Deferred revenue ...................................................... 2,518 2,693 Current portion of long-term debt and capital lease obligations ....... 683 999 ----------- ----------- Total current liabilities ........................................... 111,018 114,013 Long-term debt and capital lease obligations .......................... 169,636 241,998 Other liabilities ..................................................... 7,655 12,188 ----------- ----------- Total liabilities .................................................... 288,309 368,199 Stockholders' Equity: Genzyme General Stock, $.01 par value ................................. 775 755 Genzyme Tissue Repair Stock, $.01 par value ........................... 159 132 Genzyme Molecular Oncology Stock $.01 par value ....................... 39 -- Additional paid-in capital - Genzyme General .......................... 883,922 871,020 Additional paid-in capital - Genzyme Tissue Repair .................... 140,770 122,385 Additional paid-in capital - Genzyme Molecular Oncology ............... 34,589 -- Treasury Stock - at cost .............................................. (901) (890) Accumulated deficit ................................................... (66,813) (89,975) Foreign currency translation adjustments .............................. (11,919) (745) Unrealized net gains (losses) on investments .......................... 5,726 (373) ----------- ----------- 986,347 902,309 ----------- ----------- $ 1,274,656 $ 1,270,508 =========== ===========
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 20 21 GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS) SEPTEMBER 30, SEPTEMBER 30, - --------------------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Net product sales .................................... $ 132,098 $ 117,673 $ 391,890 $ 301,575 Net service sales .................................... 16,694 18,510 50,386 51,539 Revenues from research and development contracts ..... 3,302 6,700 6,679 18,901 --------- --------- --------- --------- Total revenues ...................................... 152,094 142,883 448,955 372,015 Operating costs and expenses: Cost of products sold ................................ 42,516 47,911 134,526 110,399 Cost of services sold ................................ 11,810 15,060 36,096 40,593 Selling, general and administrative .................. 50,644 42,542 145,017 118,575 Amortization of intangibles .......................... 4,750 3,121 11,338 5,657 Research and development (including research and development related to contracts) ............... 22,770 21,238 64,454 57,493 Charge for in-process technology ..................... -- 24,170 7,000 24,170 Restructuring charges ................................ -- -- -- 1,465 --------- --------- --------- --------- Total operating costs and expenses .................. 132,490 154,042 398,431 358,352 --------- --------- --------- --------- Operating income (loss) .................................. 19,604 (11,159) 50,524 13,663 Other income (expenses): Equity in net loss of unconsolidated affiliates ...... (3,401) 470 (7,670) (1,588) Gain on investment ................................... -- -- -- 1,711 Investment income .................................... 2,824 3,637 8,134 12,740 Interest expense ..................................... (3,288) (3,187) (8,543) (3,582) --------- --------- --------- --------- Total other income (expenses) ....................... (3,865) 920 (8,079) 9,281 --------- --------- --------- --------- Income (loss) before income taxes ........................ 15,739 (10,239) 42,445 22,944 Provision for income taxes ............................... (6,182) (5,601) (19,252) (18,708) --------- --------- --------- --------- Net income (loss) ........................................ $ 9,557 $ (15,840) $ 23,193 $ 4,236 ========= ========= ========= =========
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 21 22 GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30, - ----------------------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- ATTRIBUTABLE TO GENZYME GENERAL: Net income (loss) attributable to Genzyme General Stock.......... $ 18,997 $(9,881) $ 54,479 $ 21,635 Allocated tax benefit generated by Genzyme Tissue Repair ........ 4,240 3,973 13,078 11,775 Allocated tax benefit generated by Genzyme Molecular Oncology ... 1,120 -- 1,321 -- -------- ------- -------- -------- Net income (loss) attributable to Genzyme General ............. $ 24,357 $(5,908) $ 68,878 $ 33,410 ======== ======= ======== ======== Income (loss) per Genzyme General common and common equivalent share: Net income (loss) .............................................. $ 0.31 $ (0.09) $ 0.88 $ 0.46 ======== ======= ======== ======== Average shares outstanding ..................................... 79,446 69,440 78,604 73,024 ======== ======= ======== ======== Income (loss) per Genzyme General common share assuming full dilution: Net income (loss) .............................................. $ 0.30 $ (0.09) $ 0.87 $ 0.45 ======== ======= ======== ======== Average fully diluted shares outstanding ....................... 79,865 69,440 78,964 74,146 ======== ======= ======== ======== ATTRIBUTABLE TO GENZYME TISSUE REPAIR: Net loss attributable to Genzyme Tissue Repair Stock ............ $(11,031) $(9,932) $(34,291) $(29,174) ======== ======= ======== ======== Loss per Genzyme Tissue Repair common share: Net loss ...................................................... $ (0.72) $ (0.78) $ (2.47) $ (2.33) ======== ======= ======== ======== Average shares outstanding .................................... 15,220 12,711 13,879 12,511 ======== ======= ======== ======== ATTRIBUTABLE TO GENZYME MOLECULAR ONCOLOGY: Net loss attributable to Genzyme Molecular Oncology ............. $ (3,914) $(12,933) ======== ======== Loss per Genzyme Molecular Oncology common share: Net loss ...................................................... $ (1.00) ======== Average shares outstanding .................................... 3,929 ======== Per pro forma common share: Pro forma net loss ............................................ $ (3.29) ======== Pro forma shares outstanding .................................. 3,929 ========
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 22 23 GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, - ---------------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net income ..................................................................... $ 23,193 $ 4,236 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization ............................................... 30,299 20,783 Provision for bad debts ..................................................... 5,382 5,925 (Gain) loss on sale of investment ........................................... 2 (973) Accrued interest/amortization on bonds ...................................... 889 310 Accretion of debt discount .................................................. 962 -- Charge for incomplete technology ............................................ 7,000 24,170 Equity in net loss of unconsolidated affiliates ............................. 7,670 1,588 Other ....................................................................... 658 (42) Increase (decrease) in cash from working capital: Accounts receivable ...................................................... (11,762) (15,087) Inventories .............................................................. (21,793) (30,643) Prepaid expenses and other current assets ................................ (2,767) (3,209) Accounts payable, accrued expenses and deferred revenue .................. (8,001) 25,108 --------- --------- Net cash provided by operating activities ............................... 31,732 32,166 INVESTING ACTIVITIES: Purchases of investments ....................................................... (25,424) (79,457) Sales and maturities of investments ............................................ 59,245 132,685 Investment in unconsolidated affiliate ......................................... (8,834) (3,600) Loans to affiliate ............................................................. -- (1,676) Acquisition of PharmaGenics, net of acquired cash .............................. 9 -- Acquisition of DSP, net of acquired cash ....................................... -- (194,497) Purchases of property, plant and equipment ..................................... (25,081) (47,787) Sale of property, plant and equipment .......................................... 349 -- Other noncurrent assets and other noncurrent liabilities ....................... (30,536) (16,288) --------- --------- Net cash used by investing activities ................................... (30,272) (210,620) FINANCING ACTIVITIES: Proceeds from issuance of common stock ......................................... 120,157 24,084 Proceeds from issuance of debt ................................................. 32,150 238,000 Payments of long-term debt and capital lease obligations ....................... (100,881) (87,692) --------- --------- Net cash provided by financing activities ............................... 51,426 174,392 --------- --------- Effect of exchange rate changes on cash ............................................ (2,393) 1,212 --------- --------- Increase (decrease) in cash and cash equivalents ................................... 50,493 (2,850) Cash and cash equivalents at beginning of period ................................... 93,450 144,372 --------- --------- Cash and cash equivalents at end of period ......................................... $ 143,943 $ 141,522 ========= =========
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 23 24 GENZYME CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited, consolidated financial statements should be read in conjunction with the 1996 Genzyme 10-K/A and the financial statements and footnotes included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. Certain items in the 1996 financial statements have been reclassified to conform with the 1997 presentation. The financial statements for the three and nine months ended September 30, 1997 and 1996 are unaudited but include, in management's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. INVENTORIES (IN THOUSANDS)
September 30, 1997 December 31, 1996 ------------------ ----------------- Raw materials................................... $ 40,653 $ 30,379 Work-in-process................................. 36,572 38,203 Finished products............................... 69,707 56,683 -------- -------- $146,932 $125,265 ======== ========
3. REVOLVING CREDIT FACILITY Genzyme has a Revolving Credit Facility with a syndicate of commercial banks administered by Fleet National Bank in the amount of $225.0 million. Amounts drawn under this facility may be allocated to Genzyme General, GTR or GMO. As of September 30, 1997, the company had $118.0 million of debt outstanding under the Revolving Credit Facility, which had been allocated $95.0 million to Genzyme General, $18.0 million to GTR and $5.0 million to GMO. 4. PROVISION FOR INCOME TAXES The tax provisions for the three and nine months ended September 30, 1997 vary from the U.S. statutory tax rate because of the provision for state income taxes, nondeductible intangible amortization, losses of unconsolidated affiliates, tax credits and taxes on foreign earnings. The effective tax rate was 39.3% and 38.9%, respectively, for the three and nine months ended September 30, 1997 as compared to 43.4% and 40.6%, respectively, for the corresponding periods in 1996. 5. NEW ACCOUNTING PRONOUNCEMENT In February 1997, The FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing EPS than is currently required under the provisions of APB 15. Under SFAS No. 128, Genzyme will be required to present both basic EPS and diluted EPS attributable to GGD Stock, GTR Stock and GMO Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Basic EPS for Genzyme General for the quarter ended September 30, 1997 and September 30, 1996, would have been $0.32 and $(0.09), respectively, and $0.90 and $0.49 for the nine months ended September 30, 1997 and 1996, respectively. Basic EPS for GTR and GMO for the three and nine months ended September 30, 1997 and September 30, 1996 would have been the same as EPS for each division for each respective period computed under the provisions of APB 15. The impact of SFAS No. 128 on the calculation of diluted EPS for these quarters is not expected to be materially different than fully diluted EPS. Genzyme will adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical EPS data presented will be restated to conform to the provisions of SFAS No. 128. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130"), and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the "Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively. Application of the Statements' disclosure requirements will have no impact on the Genzyme's consolidated financial position, results of operations or earnings per share data as currently reported. 24 25 6. INVESTMENT IN ABIOMED, INC. In July 1997, Genzyme General purchased 1,153,846 shares of ABIOMED, Inc. common stock for $13.00 per share for an aggregate investment of $14,999,998. As a result of the investment, Genzyme owns approximately 14% of ABIOMED, Inc. 7. JOINT VENTURE WITH GENZYME TRANSGENICS CORPORATION Pursuant to the Convertible Debt and Development Funding Agreement between Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme General has been funding GTC's development of transgenic ATIII, a plasma protein that helps regulate blood clotting, since April 1, 1996. In July 1997, Genzyme and GTC announced that an agreement in principle had been reached on the key terms of a joint venture for further development, marketing and distribution of transgenic ATIII worldwide, excluding Asia. Genzyme General will provide 70% of the development costs up to a maximum of $33.0 million. GTC will fund the remaining 30% of the development costs. Both companies will fund equally any costs in excess of that level, and profits will be split equally. 8. GMO PRIVATE PLACEMENT In August 1997, GMO completed a private placement of the GMO Debentures. The GMO Debentures bear interest at 6% per annum and are convertible into shares of GMO Stock beginning no earlier than the 91st day after the completion of the GMO IPO. Beginning on February 26, 1998, the GMO Debentures will be convertible at a discount to the average of the closing bid prices of GMO Stock as reported by the Nasdaq National Market for the 20 trading days immediately preceding the applicable conversion date (the "Market Price"), which discount begins at 7% and will increase by an additional one percent every 30 days thereafter until October 24, 1998. Beginning November 23, 1998, the conversion price will be the lower of (i) 85% of the Market Price calculated as of the actual conversion date and (ii) 85% of the Market Price calculated as of November 22, 1998. In no event, however, will the conversion price be less than $7.70 per share (subject to adjustment in the event of any stock split, stock dividend, reclassification, combination or similar event). In the third quarter of 1997, GMO recorded $16.5 million of proceeds attributed to the value of the debt and $3.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $16.5 million will be accreted to the face value of the debt by a charge to interest expense over the term of the initial 15 month conversion period. EXCHANGE OPTION If GMO has not completed the GMO IPO by August 29, 1998, at the holder's option, the GMO Debentures may be exchanged for GGD Debentures due August 29, 2003. If the GMO IPO is completed before August 29, 1998 but the aggregate proceeds from the offering are less than $15.0 million or GMO's market capitalization is below $90.0 million, at the holder's option, 50% of the GMO Debentures can be exchanged for GGD Debentures. The exchange option must be exercised within 30 business days after August 29, 1998 or the date on which the GMO IPO is consummated. The GGD Debentures, if issued, will be convertible, at the option of the holder, at any time prior to maturity into shares of GGD Stock at a 13% premium to the average closing bid price of GGD Stock or reported by the Nasdaq National Market for the five trading days immediately preceding the issue date. PUT OPTION If at any time after the 180 day period after completion of the GMO IPO, the conversion price is less than the floor conversion price of $7.70 for every trading day during the Put Review Period, the holder will have the option over the Put Exercise Period to put the GMO Debentures back to GMO for cash compensation. The holder has three options to exercise the put. The first Put Review Period may not commence until 180 days after completion of the GMO IPO. The Put Review Period for the second and third options (assuming the first has occurred) may only commence 90 days after the previous Put Exercise Period has expired. CALL OPTION The GMO Debentures are callable with cash or stock beginning 18 months after the GMO IPO if the stock has closed at 150% of the Fixed Conversion Price for 20 consecutive trading days. 9. SUBSEQUENT EVENT In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public for $7.75 per share. Net proceeds from the offering after underwriting discounts and commissions were $29.2 million. 25 26 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 The following discussion is a summary of the key factors management considers necessary in reviewing the Company's results of operations, liquidity and capital resources. GENZYME CORPORATION AND SUBSIDIARIES Since the operating results of Genzyme and its subsidiaries reflect the combined operations of Genzyme General, GTR and GMO, this discussion summarizes the key factors management considers necessary in reviewing Genzyme's consolidated results of operations. Detailed discussion and analysis of each Division's results of operations are provided below under separate headings. REVENUES Total revenues for the three and nine months ended September 30, 1997 were $152.1 million and $449.0 million, respectively, increases of 6% and 21% over each of the corresponding periods in 1996. Product revenues consist solely of product sales by Genzyme General and for the three months ended September 30, 1997 increased 12% to $132.1 million from $117.7 million for the corresponding period in 1996. The increase was primarily due to the increased sales of Cerezyme[R] enzyme and Ceredase[R] enzyme, offset in part by a decrease in sales of surgical products. This decrease was primarily due to the loss of market share caused by price competition in the fluid management business. Product revenues increased 30% to $391.9 million for the nine months ended September 30, 1997 from $301.6 million for the corresponding period in 1996. The increase was due primarily to the addition of sales through the acquisition of Deknatel Snowden Pencer, Inc. ("DSP"), which was acquired in July 1996, and to increased sales of Ceredase[R] enzyme and Cerezyme[R] enzyme. Service revenues consist of sales of genetic testing services by the Genzyme Genetics business unit, sales of Genzyme Tissue Repair's CARTICEL(R) and Epicel[SM] Services, and sales of Genzyme Molecular Oncology's SAGE[TM] Service. Service revenues for the three months ended September 30, 1997 decreased 10% to $16.7 million from $18.5 million for the corresponding period in 1996 due primarily to the loss of revenues from Genzyme Genetics's identity testing laboratory, Genetic Design, Inc. ("GDI"), which was sold in November 1996, offset in part by 135% and 21% increases in sales of GTR's Carticel[R] Service and Epicel[SM] Service, respectively, and the addition of the initial sales of GMO's SAGE[TM] Service. Service revenues for the nine months ended September 30, 1997 declined 2% to $50.4 million from $51.5 million in the corresponding period of 1996. The decrease in revenue for the nine months ended September 30, 1997 from the corresponding period in 1996 was due primarily to the loss of revenues from GDI, offset in part by higher unit volumes attributable to the acquisition of Genetrix, Inc. ("Genetrix") which was added to Genzyme Genetics's revenues from May 1996, 113% and 5% increases in sales of GTR's Carticel[R] Service and Epicel[SM] Service, respectively, and the addition of the initial sales of GMO's SAGE[TM] Service. Revenues from research and development contracts for the three and nine months ended September 30, 1997 were primarily attributable to Genzyme General and decreased 51% and 65%, respectively, to $3.3 million and $6.7 million, respectively, as compared to $6.7 million and $18.9 million for the corresponding periods in 1996. The decrease resulted primarily from the loss of revenues from Neozyme II Corporation ("Neozyme II"), which was acquired by Genzyme in the fourth quarter of 1996, offset in part by an increase in revenues from research and development efforts performed by Genzyme General on behalf of GTC. Neozyme II provided $5.9 million and $16.5 million of revenue for the three and nine months ended September 30, 1996, respectively. MARGINS AND OPERATING EXPENSES Gross margins for the quarters ended September 30, 1997 and 1996 were 63% and 54%, respectively, and 61% and 57% for the nine months ended September 30, 1997 and 1996, respectively. Product margins for the three and nine months ended September 30, 1997 were 68% and 66%, respectively, and for the corresponding periods in 1996 were 59% and 63%, respectively. The increase in both periods primarily relates to increased sales volume of Cerezyme[R] enzyme and Ceredase[R] enzyme, offset by decreased sales volume of Melatonin and the addition of lower margin sales of DSP. Service margins were 30% and 19% for the three months ended September 30, 1997 and 1996, respectively, and 29% and 21% for the nine months ended September 30, 1997 and 1996, respectively. The increase in service margins for both periods primarily relates to efficiencies gained through the acquisition of Genetrix. Genzyme provides a broad range of health care products and services, resulting in a broad range of gross margins depending on the particular market conditions of each product or service. Selling, general and administrative ("SG&A") expenses and amortization of intangibles for the three months ended September 30, 1997 increased 21% to $55.4 million from $45.7 million in the same period last year. SG&A and amortization of intangibles for the nine months ended September 30, 1997 increased 26% to $156.4 million from $124.2 million in the same period last year. The increases for both periods resulted primarily from the acquisitions of Genetrix and DSP, increased staffing in support of the growth in several product lines, most notably in support of the North American introduction of Seprafilm(TM), increased surgeon training costs related to the CARTICEL[R] Service and increased amortization of intangibles related to amortization of Completed Technology and Goodwill which resulted from the acquisition of PharmaGenics in June 1997. 26 27 Research and development expenses for the three and nine months ended September 30, 1997 were $22.8 million and $71.5 million, respectively, compared to $45.4 million and $81.7 million in the corresponding periods of 1996, a decrease of 50% and 13%, respectively. The decline in research and development expenses is primarily due to a decline in charges for in-process technology which were zero and $7.0 million in the three and nine months ended September 30, 1997 as compared to $24.2 million in each of the corresponding periods of 1996. The charge for in-process technology of $7.0 million in the nine months ended September 30, 1997 resulted from the acquisition of PharmaGenics in June 1997 and the $24.2 million charge in the three and nine months ended September 30, 1996 resulted from the acquisition of DSP in July 1996. Excluding the effect of the charges for in-process technology, research and development expenses increased 7% and 12% to $22.8 million and $64.5 million, respectively, in the three and nine months ended September 30, 1997 from $21.2 million and $57.5 million, respectively, in the corresponding periods in 1996 due primarily to increases in Genzyme General's commitment to fund development costs of the ATIII program being conducted by GTC, increased spending associated with the Biologics License Application for the CARTICEL[R] Service and to the one time write-off of $7.0 million for in-process technology related to the acquisition of PharmaGenics by GMO in June 1997. OTHER EXPENSES Net other expenses were $3.9 million and $8.1 million for the three and nine month periods ended September 30, 1997 compared to net other income of $0.9 million and $9.3 million for the same periods in 1996. The change was primarily the result of an increase in interest expense. The increase in interest expense is due primarily to borrowings under the Revolving Credit Facility, additional interest expense incurred by GTR and GMO related to a $13 million convertible note (the "GTR Note") and the GMO Debentures issued in February 1997 and August 1997, respectively, and the respective charges to interest expense for the accretion of each such debt instrument to face value, and a reduction of capitalized interest due to the completion of Genzyme's Allston Landing manufacturing facility in June 1996. Interest expense for the three and nine months ended September 30, 1997 was $3.3 million and $8.5 million, respectively, net of zero and $0.4 million of capitalized interest on construction in progress in each period, as compared to interest expense of $3.2 million and $3.6 million for the three and nine months ended September 30, 1996, respectively, net of capitalized interest of zero million and $2.2 million, respectively. The increase resulted from interest on funds borrowed in 1996 to finance portions of the acquisitions of DSP and Neozyme II and a reduction of capitalized interest on construction in-progress due to completion of Genzyme's Allston Landing manufacturing facility in June 1996. Investment income and gain on investments for the three and nine months ended September 30, 1997 decreased 22% and 44%, respectively, compared to the same periods in 1996 due primarily to lower average cash balances and a $1.7 million gain on the sale of the Company's investment in North American Biologicals, Inc. ("NABI") recorded in June 1996. The tax provisions for the three and nine months ended September 30, 1997 vary from the U.S. statutory tax rate due to the provision for state income taxes, nondeductible intangible amortization, losses of unconsolidated affiliates, tax credits and taxes on foreign earnings. The effective tax rate was 39.3% and 38.9% for the three and nine months ended September 30, 1997, respectively, as compared to 43.4% and 40.6% for the corresponding periods in 1996. GENZYME GENERAL REVENUES Total revenues for the three and nine months ended September 30, 1997 increased 6% and 20%, respectively, to $148.8 million and $441.1 million in comparison to $141.0 million and $366.8 million, respectively, in the corresponding periods in 1996. Product and service revenues for the three and nine months ended September 30, 1997 were $145.6 million and $434.5 million, respectively, representing an increase of 8% and 25% in comparison to the same periods in 1996. Product revenues for the three and nine months ending September 30, 1997 increased 12% and 30%, respectively, over the same periods in 1996. The increase for the quarter ended September 30, 1997 was primarily due to increased sales of Cerezyme[R] enzyme and Ceredase[R] enzyme, offset in part by a decrease in sales of surgical products. This decrease was primarily due to the loss of market share caused by price competition in the fluid management business. The increase for the nine months ended September 30, 1997 was due to the addition of sales through the acquisition of DSP and to increased sales of Ceredase(R) enzyme and Cerezyme(R) enzyme. Product sales for the Specialty Therapeutics business unit for the three and nine months ended September 30, 1997 consisted entirely of sales of Ceredase(R) enzyme and Cerezyme(R) enzyme and increased 23% and 26%, respectively, over the corresponding periods in 1996 due to successful market penetration efforts in Japan and continued growth in new patient accruals in existing markets. Genzyme General's results of operations are highly dependent on these products as they represented 65% and 62% of product sales for the three and nine months ended September 30, 1997, respectively. 27 28 Product sales for the surgical products business unit for the three months ended September 30, 1997 consisted primarily of sales of DSP products and declined 8% to $23.2 million from $25.2 million in the corresponding period of 1996 due primarily to a loss of volume and severe price competition in the fluid management business. Surgical product sales increased 204% to $76.8 million in the nine months ended September 30, 1997 from $25.3 million in the corresponding period of 1996 due primarily to the acquisition of DSP which provided $50.0 million of revenue in the first six months of 1997 for which comparable amounts are not reflected in the nine months ended September 30, 1996. Excluding the effect of the additional revenue from DSP, surgical products revenue increased 6% in the nine months ended September 30, 1997 as compared to the corresponding period in 1996 due primarily to an additional $2.0 million of revenue from a distribution agreement executed in 1997 and increased sales of Sepra Products, offset in part by a loss of volume and severe price competition in the fluid management business. Product sales for the three and nine months ended September 30, 1997 by the Diagnostic Products business unit were level over the same period as 1996. Total product sales by the Pharmaceutical business unit declined 6% and 36% in the three and nine months ended September 30, 1997 as compared to 1996 as a result of a significant decline in sales of Melatonin. This was offset partially by a 3% and 25% increase for the same periods in sales of pharmaceutical grade hyaluronic acid ("HA") powder and other pharmaceutical products. Melatonin sales began to decline materially in the second half of 1996 due to reduced market demand, and Genzyme General does not expect that Melatonin sales will return to the levels experienced during the first nine months of 1996. Revenues for Genzyme Genetics decreased 19% and 8% for the three and nine months ended September 30, 1997, respectively, as compared to the corresponding periods of 1996. The decrease for the three and nine months ended September 30, 1997 was primarily from the loss of revenue from GDI, which was sold in November 1996, but was offset by higher unit volumes attributable to the acquisition of Genetrix which revenues were added to Genzyme Genetics's revenues from May 1996. GDI contributed $3.3 million and $10.4 million, respectively, in revenues for the three and nine months ended September 30, 1996. International sales for the three and nine months ended September 30, 1997 and 1996 represented 38% of total product sales for both periods of 1997 and 36% and 38%, respectively, for the corresponding periods in 1996 as the addition of domestic sales by DSP offset an increase in the combined international sales of Ceredase(R) and Cerezyme(R) enzymes of 31% and 32% for the three and nine months ended September 30, 1997, respectively. Revenues from research and development contracts for the three and nine months ended September 30, 1997 were $3.2 million and $6.6 million, respectively, and declined 52% and 65%, respectively, in comparison to $6.7 million and $18.9 million, respectively, for the corresponding periods in 1996. The decrease for both periods is due primarily to the absence of revenue from Neozyme II, which was acquired by Genzyme in the fourth quarter of 1996 and which provided $5.9 million and $16.5 million of revenue for the three and nine month periods ended September 30, 1996, respectively, offset in part by an increase in research and development efforts performed by Genzyme General on behalf of GTC. MARGINS AND OPERATING EXPENSES Gross margins were 65% and 63% for the three and nine month periods ended September 30, 1997, respectively, compared to 54% and 55% for the same periods ended September 30, 1996. Genzyme General provides a broad range of health care products and services, resulting in a broad range of gross margins depending on the particular market conditions of each product or service. Product margins were 68% and 66%, respectively, for the three and nine month periods ended September 30, 1997 compared to 59% and 63% for the three and nine month periods ended September 30, 1996, respectively. The increase in both periods primarily relates to increased sales volume of Cerezyme(R) enzyme and Ceredase(R) enzyme offset by decreased sales volume of Melatonin and the addition of lower margin sales of DSP. Service margins increased to 36% and 37% for the three and nine months ended September 30, 1997, respectively, from 25% and 30% for the corresponding periods in 1996 due to the completion of the consolidation of Genzyme Genetics with Genetrix, the sale of GDI, and the resulting elimination of redundant facilities and staffing. SG&A expenses and amortization of intangibles for the three and nine months ended September 30, 1997 were $46.8 million and $134.9 million, respectively, an increase of 20% and 29% over the same periods in 1996. The increase was due primarily to the acquisition of DSP and increased staffing in support of the growth in several product lines, most notably in support of the North American introduction of Seprafilm(TM). DSP added $21.2 million in SG&A expenses and amortization of intangibles in the first six months of 1997 for which comparable amounts were not included in the results of Genzyme General for the same period in 1996. Charges for the amortization of intangibles for the three and nine month periods ended September 30, 1997 were $3.1 million and $9.5 million, respectively, as compared to $3.1 million and $5.7 million in the same periods of 1996 due to the addition of acquired patents and trade names and goodwill recorded as a result of the acquisitions of Genetrix and DSP. Research and development expenses for the three and nine months ended September 30, 1997 were $18.5 million and $54.8 million, respectively, as compared to $18.3 million and $49.9 million in the same periods in 1996. The increase was due to Genzyme General's funding of the development costs to the ATIII program being conducted by GTC and increased spending on internal program, most notably Thyrogen(R). 28 29 OTHER INCOME AND EXPENSES Other income and expenses decreased substantially due to the combined effect of a decrease in investment income and an increase in interest expense related to funds borrowed under the Revolving Credit Facility. Investment income and gain on investment for the three and nine months ended September 30, 1997 decreased to $2.4 million and $7.3 million, respectively, from $3.3 million and $13.2 million for the same periods in 1996 due primarily to lower average cash balances and a $1.7 million gain on the sale of Genzyme General's investment in NABI which was recorded in the second quarter of 1996. Interest expense for the three and nine months ended September 30, 1997 was $2.0 million and $6.0 million, respectively, compared to $3.2 million and $3.6 million for the same periods in 1996. The increase resulted from interest on funds borrowed in 1996 to finance portions of the acquisitions of DSP and Neozyme II and a reduction of capitalized interest on construction in progress due to the completion of Genzyme's Allston Landing manufacturing facility in June 1996. The tax provisions for the three and nine months ended September 30, 1997 vary from the U.S. statutory tax rate because of the provision for state income taxes, nondeductible amortization of intangibles, Genzyme General's share of losses of unconsolidated affiliates and taxes on foreign earnings. The effective tax rate was 38.6% and 38.5%, respectively, for the three and nine months ended September 30, 1997 a slight decrease from 41.9% and 40.5%, respectively, in the corresponding periods in 1996. The allocated tax benefit generated by Genzyme Tissue Repair and GMO for the three and nine months ended September 30, 1997 of $5.4 million and $14.4 million, respectively, reduced Genzyme General's tax rate to 21.2% and 22.2%, respectively, for such periods. GENZYME TISSUE REPAIR REVENUES Service revenues for the three and nine months ended September 30, 1997 were $3.1 million and $7.7 million, respectively, an increase of 65% and 48% over the same periods in 1996. Sales of the CARTICEL(R) Service were $1.7 million and $4.4 million, respectively, for the three and nine months ended September 30, 1997 as compared to $0.7 million and $2.1 million, respectively, for the comparable periods in 1996. The growth in sales of the CARTICEL(R) Service most notably following issuance by the FDA of a biologics license to GTR in August 1997 for the CARTICEL(R) Service, is primarily attributable to increased acceptance of the service by surgeons and insurance companies and a continued increase in the number of surgeons trained in the procedure utilizing the service. Sales of the Epicel[SM] Service were $1.4 million and $3.3 million, respectively, in the three and nine months ended September 30, 1997 compared to $1.1 million and $3.2 million for the same periods in 1996 due to a slight increase in the number of burn incidents requiring the service. MARGINS AND OPERATING EXPENSES Service margins were 3% of service revenues for the three months ended September 30, 1997. GTR's cost of services sold exceeded revenue for the nine months ended September 30, 1997 and for the three and nine months ended September 30, 1996 by $1.2 million, $0.7 million and $3.2 million, respectively. The improvement in service margins in the three and nine months ended September 30, 1997 is primarily attributable to the higher sales volume and efficiencies gained in the manufacturing process. SG&A expenses were $6.4 million and $19.0 million for the three and nine months ended September 30, 1997, respectively, a decrease of 4% and 3% over the same periods in 1996 due primarily to a reduction in staffing levels. Genzyme Tissue Repair incurs direct SG&A charges as well as an SG&A charge from Genzyme General for SG&A work provided by Genzyme General on behalf of Genzyme Tissue Repair. For the three and nine months ended September 30, 1997, $0.3 million and $2.1 million, respectively, of SG&A services were provided by Genzyme General as compared to $0.5 million and $3.2 million for the same periods in 1996. Research and development expenses were $2.7 million and $7.7 million for the three and nine months ended September 30, 1997, respectively, as compared to $2.9 million and $7.6 million for the same periods in 1996. The decrease in the three months ended September 30, 1997 is primarily attributable to a reduction in costs associated with the Vianain and TGF-Beta programs, offset in part by increased spending associated with the Biologics License Application for the Carticel [R] Service. The increase for the nine months ended September 30, 1997, is due primarily to increased spending associated with the Biologics License Application for the CARTICEL(R) Service which exceeded a decline in costs related to the Vianain(R) and TGF-Beta programs. For the three and nine months ended September 30, 1997, $2.3 million and $7.6 million, respectively, of research and development services were provided by Genzyme General on behalf of Genzyme Tissue Repair, compared to $1.8 million and $6.9 million in the corresponding periods in 1996. OTHER INCOME AND EXPENSES Investment income was $0.3 million for both the three months ended September 30, 1997 and 1996 and declined to $0.6 million in the nine months ended September 30, 1997 from $1.3 million in the same period in 1996, due primarily to lower average cash balances. 29 30 Interest expense for the three and nine months ended September 30, 1997 increased to $0.8 million and $2.0 million, respectively, as a result of the interest related to the addition of $11.5 million of debt from the private placement of the GTR Note in February 1997 (see "Liquidity and Capital Resources"), the interest charges to accrete this debt to its face value of $13.0 million and a 20% increase in borrowing under a revolving credit facility in June 1996. In the three and nine months ended September 30, 1997, Genzyme Tissue Repair provided $1.0 million and $5.1 million, respectively, of funding to, and realized a net loss of $1.5 million and $4.9 million, respectively, from Diacrin/Genzyme LLC, the joint venture established between Genzyme Tissue Repair and Diacrin to develop and commercialize products and processes using porcine fetal cells for the treatment of Parkinson's disease and Huntington's disease in humans. There was no corresponding amount in the same period of 1996. GENZYME MOLECULAR ONCOLOGY RESULTS OF OPERATIONS In the three and nine months ended September 30, 1997, GMO recorded service revenue of $0.1 million and research and development revenue of $0.1 million as compared to no revenues in the corresponding periods of 1996. Service revenues consist of the sale of SAGE services a high-speed, differential gene identification technology which was acquired upon consummation of the Merger. Research and development revenue consists of work performed for the joint venture with StressGen/Genzyme LLC. In each of the three and nine months ended September 30, 1997, GMO incurred $0.1 million in cost of revenue. There was no similar amount in the corresponding periods of 1996. The cost of revenue primarily consists of work performed on behalf of the StressGen/Genzyme LLC. In the three and nine months ended September 30, 1997, GMO incurred $1.6 million and $3.2 million, respectively, of research and development costs as compared to $0.2 million and $0.6 million for the corresponding periods in 1996. The increase in research and development costs relates to increases in research personnel and related expenses pertaining to GMO's SAGE and gene therapy programs. For the nine months ended September 30, 1997, GMO recorded a $7.0 million charge for the purchase of in-process technology which has no alternative future use, as part of the acquisition of PharmaGenics. GMO incurred $0.5 million and $0.8 million of SG&A expenses in the three and nine months ended September 30, 1997, respectively, as compared to $0.1 million for each of the corresponding periods in 1996. The primary reason for the increase was more administrative support corresponding to the growth of GMO's programs and the acquisition of PharmaGenics. GMO incurred $1.8 million and $2.0 million of amortization of intangibles in the three and nine months ended September 30, 1997, respectively. There were no similar amounts in the corresponding periods of last year. The increase is due to amortization of intangibles from the Pharmagenics acquisition. GMO recorded $0.1 million, $0.2 million and $0.5 million of equity in net loss of joint venture, interest income and interest expense, respectively, for the nine months ended September 30, 1997. There were no similar amounts in the corresponding periods of 1996. The equity in net loss of joint venture is GMO's portion of the net loss of the StressGen/Genzyme LLC. The interest income results from higher average cash balances due to the issuance of the GMO Debentures in August 1997. The interest expense is primarily due to interest and related amortization of discount on the GMO Debentures. GMO recorded $0.4 million of deferred tax benefit in each of the three and nine months ended September 30, 1997. There was no similar amount in the corresponding period of 1996. The deferred tax benefit results from amortization of the deferred tax liability established upon the acquisition of PharmaGenics. 30 31 LIQUIDITY AND CAPITAL RESOURCES GENZYME CORPORATION AND SUBSIDIARIES As of September 30, 1997, Genzyme had cash and cash equivalents of $143.9 million, an increase of $50.5 million from December 31, 1996. Operating and financing activities provided $31.7 million and $51.4 million of cash, respectively, investing activities used $30.3 million and fluctuations in exchange rates caused a reduction in cash of $2.4 million. In the nine months ended September 30, 1997, financing activities provided $33.2 million of cash proceeds from the exercise of stock options and warrants and the issuance of stock under the employee stock purchase plan, $87.0 million of cash related to certain warrants exercised immediately prior to December 31, 1996 and classified as other current assets in Genzyme's balance sheet as of December 31, 1996 and $32.2 million from the issuance of debt, and used $100.1 million for the re-payment of debt and capital lease obligations, of which $100.0 million represents a reduction in Genzyme's outstanding debt under the Revolving Credit Facility. At September 30, 1997, $118.0 million was outstanding under the Revolving Credit Facility, of which $95.0 million was allocated to Genzyme General, $18.0 million was allocated to GTR and $5.0 million was allocated to GMO. In the nine months ended September 30, 1997, investing activities provided $33.8 million of cash from the turnover of the investment portfolio and used $64.1 million of cash, of which $25.1 million was used to finance capital expenditures, $5.1 million was used to fund GTR's investment in Diacrin/Genzyme LLC, $3.0 million was used to fund Genzyme General's investment in RenaGel LLC, $0.7 million was used to finance GMO's investment in StressGen/Genzyme LLC, $15.0 million was used to make an equity investment in ABIOMED, Inc., $2.5 million was used to make an equity investment in GelTex, $6.5 million was used to fund a non-compete agreement, $2.5 million was loaned to PharmaGenics pursuant to the terms of a pre-acquisition credit facility provided to PharmaGenics by Genzyme, and $3.7 million was used to fund acquisition costs and other non current assets. As of September 30, 1997, Genzyme had accounts receivable of $119.3 million, net of an allowance for doubtful accounts, an increase of $2.7 million from December 31, 1996 due to the growth in each of Genzyme's businesses. Genzyme had inventories of $146.9 million, an increase of $21.7 million over December 31, 1996. The increase was due primarily to support of increased business operations, most notably in the Specialty Therapeutics business unit inventories as a result of increased production of Cerezyme(R) enzyme and in the Surgical Products business unit in support of the introduction of Seprafilm(TM) in the North American marketplace. As of June 30, 1997, 2,694,438 GTR Designated Shares had been reserved for issuance at the discretion of the Genzyme Board for the benefit of Genzyme General or its stockholders and 466,501 Designated Shares had been reserved for issuance upon the exercise of Genzyme General stock options and warrants. On June 30, 1997, the Genzyme Board declared a dividend of 2,685,941 GTR Designated Shares which were distributed on July 22, 1997 to Genzyme General stockholders of record as of July 11, 1997, in a tax-free distribution of approximately .03 share of GTR Stock for each share of GGD Stock owned. A total of 2,294,613 shares of GTR Stock were issued to Genzyme General stockholders in the distribution and 391,328 shares of GTR Stock have been reserved for issuance upon the exercise of Genzyme General stock options and warrants outstanding on the record date. GENZYME GENERAL As of September 30, 1997, Genzyme had cash and cash equivalents of $108.6 million, an increase of $31.4 million from December 31, 1996. Operating activities provided $61.4 million of cash, respectively, investing and activities used $24.5 million and $3.2 million, respectively, of cash fluctuations in exchange rates caused a reduction in cash of $2.4 million. In the nine months ended September 30, 1997, financing activities provided $30.6 million of cash proceeds from the exercise of stock options and warrants and the issuance of stock under the employee stock purchase plan and $87.0 million of cash related to certain warrants exercised immediately prior to December 31, 1996 and classified as other current assets in Genzyme's balance sheet as of December 31, 1996 and used $100.1 million for the re-payment of debt and capital lease obligations, of which $100.0 million represents a reduction in Genzyme's outstanding debt under the Revolving Credit Facility $15.1 million was allocated to Genzyme Tissue Repair. Of the $15.1 million allocated to GTR, $5.1 million was allocated in exchange for 489,810 GTR Designated Shares, which have been reserved for issuance at the Genzyme Board's discretion for the benefit of Genzyme General or its stockholders, to fund GTR's investment in Diacrin/Genzyme LLC, a joint venture with Diacrin, and $10.0 million was allocated pursuant to Genzyme General's remaining option to allocate up to $20.0 million in cash to GTR in exchange for GTR Designated Shares at $10 per GTR Designated Share. In addition, Genzyme General allocated $5.0 million of debt to GMO to fund operations. In the nine months ended September 30, 1997, investing activities provided $33.8 million of cash from the turnover of the investment portfolio. In the nine months ended September 30, 1997, investing activities used $58.3 million of cash, of which $25.0 million was used to finance capital expenditures, $3.0 million to fund Genzyme General's investment in RenaGel LLC, $15.0 million to make an equity investment in ABIOMED, Inc., $2.5 million to make an equity investment in GelTex, $6.5 million to fund a non-compete agreement, $2.5 million to fund a loan to PharmaGenics pursuant to the terms of a pre-acquisition credit facility provided to PharmaGenics by Genzyme, and $3.8 million to fund acquisition costs and other non current assets. 31 32 As of September 30, 1997, Genzyme General had accounts receivable of $117.1 million, net of an allowance for doubtful accounts, an increase of $1.9 million from December 31, 1996, due to the growth in each of Genzyme General's businesses. Genzyme General had inventories of $145.6 million, an increase of $22.2 million over December 31, 1996. The increase was due primarily to support of increased business operations, most notably in the Specialty Therapeutics business unit inventories as a result of increased production of Cerezyme(R) enzyme and in the Surgical Products business unit in support of the introduction of Seprafilm(TM) in the North American market place. In June 1997, Genzyme General formed a joint venture with GelTex for the final development and commercialization of RenaGel(R) non-absorbed phosphate binder, a novel approach to control the elevated serum phosphorus levels that cause serious complications in chronic kidney failure patients. Funding for the joint venture will be provided equally by Genzyme and GelTex. The agreement calls for Genzyme General to pay GelTex $27.5 million, consisting of a $2.5 million equity investment paid in June 1997, a $15.0 million payment on receipt of FDA marketing approval for RenaGel(R) and a $10.0 million payment one year following FDA marketing approval for RenaGel(R). Pursuant to the Convertible Debt and Development Funding Agreement between Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme General has been funding GTC's development of transgenic ATIII, a plasma protein that helps regulate blood clotting, since April 1, 1996. In July 1997, Genzyme and GTC announced an agreement in principle had been reached on the key terms of a joint venture for further development, marketing and distribution of transgenic ATIII worldwide, excluding Asia. Pursuant to the terms of the joint venture agreement, Genzyme General will provide 70% of the development costs up to a maximum of $33.0 million. GTC will fund the remaining 30% of the development costs. Both companies will fund equally any costs in excess of that level, and profits will be split equally. Genzyme General believes that its available cash, investments and cash flow from research contracts and product and service sales will be sufficient to finance its planned operations and capital requirements for the foreseeable future. Although Genzyme General currently has substantial cash resources, it has committed to utilize a portion of its resources for certain purposes, such as completing the market introduction of the Sepra Products in the United States and Europe and making certain payments to third parties in connection with strategic collaborations. Genzyme General's cash resources will also be diminished upon repayment of amounts borrowed, plus accrued interest, under the Revolving Credit Facility and if its option to acquire the partnership interests in Genzyme Development Partners, L.P. ("GDP") is exercised using cash to pay some or all of the exercise price. In addition, the liabilities or contingencies of GTR and GMO affect Genzyme's resources or financial condition and could affect the financial condition or results of operations of Genzyme General. As a result, Genzyme may have to obtain additional financing. There can be no assurance that such financing will be available on terms reasonably acceptable to Genzyme. GENZYME TISSUE REPAIR As of September 30, 1997, Genzyme Tissue Repair had cash and cash equivalents of $13.9 million, a decline of $2.3 million from December 31, 1996. GTR used $26.9 million of cash for operations and $5.1 million for investing activities. In the nine months ended September 30, 1997, investing activities provided $0.4 million from the sale of equipment and used $5.1 million of cash to fund GTR's investment in Diacrin/Genzyme LLC, $0.1 million to purchase equipment and $0.3 million for investments in other noncurrent assets. Financing activities provided $29.7 million of cash, of which $15.0 million was allocated to GTR from Genzyme General, $13.0 million consisted of proceeds from the issuance of debt and $1.8 million consisted of proceeds from the exercise of stock options and warrants and stock issued under the employee stock purchase plan. Of the $13.0 million in proceeds from the GTR Note, GTR recorded $11.5 million of proceeds attributable to the value of the debt and $1.5 million attributable to the value of the conversion feature (recorded as an increase to division equity). The $11.5 million will be accreted to the face value of the debt by a charge to interest expense over the term of the initial 15 month conversion period. As of September 30, 1997, $18.0 million of funds allocated to GTR in December 1996 under the Revolving Credit Facility remained outstanding. In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public for $7.75 per share. Net proceeds from the offering after underwriting discounts and commissions were $29.2 million. 32 33 Genzyme Tissue Repair believes its available cash and investments, including the proceeds from the November 1997 Stock Offering, will be sufficient to finance planned operations and capital requirements through the end of 1998 and must raise significant additional capital in order to continue operations at current levels beyond 1998. Genzyme Tissue Repair's plans to raise additional capital include consideration of the sale of additional equity securities, strategic alliances with third parties to fund further developments and marketing of the CARTICEL(R) Service and other business transactions that would generate capital resources to assure continuation of Genzyme Tissue Repair's operations and research programs. If these initiatives are not successful, Genzyme Tissue Repair may be required to delay, scale back or eliminate certain of its programs, or to license third parties to commercialize technologies or products that the division would otherwise undertake itself. GENZYME MOLECULAR ONCOLOGY As of September 30, 1997, GMO had cash and cash equivalents of $21.4 million. GMO used $4.1 million of cash for operations in the nine months ended September 30, 1997. In July 1997, StressGen/Genzyme LLC was established as a joint venture among Genzyme, StressGen Biotechnologies Corp. ("StressGen") and the Canadian Medical Discoveries Fund Inc. ("CMDF") to develop stress gene therapies for the treatment of cancer. CMDF provided $10.0 million (Canadian) in funding in connection with the joint venture through the combination of a capital contribution to StressGen/Genzyme LLC in the amount of $1.0 million (Canadian), the purchase of warrants from Genzyme in the amount of $1.0 million (Canadian), the purchase of warrants and preferred stock from StressGen in the amount of $1.4 million (Canadian) and a limited recourse loan bearing interest at 0.125% per annum to StressGen in the amount of $6.6 million (Canadian). Each of Genzyme and StressGen (through a U.S. subsidiary) also made a capital contribution to StressGen/Genzyme LLC in the amount of $1.0 million (Canadian) and a limited recourse loan was made by the U.S. subsidiary of StressGen to StressGen/Genzyme LLC in the amount of $7.0 million (Canadian). In addition, Genzyme and StressGen have agreed to provide in equal shares any additional capital required by the joint venture in excess of the initial $10.0 million (Canadian) funding. Genzyme and StressGen have an option (the "Purchase Option"), payable in equal shares, to purchase CMDF's membership interest in StressGen/Genzyme LLC at any time during the three-year period beginning July 31, 1999 and ending July 31, 2002. The exercise price of the Purchase Option initially will be $15.6 million (Canadian) in July 1999 and will increase monthly thereafter to a final exercise price of $30.5 million (Canadian) in July 2002. The limited recourse loan made by CMDF will be retired in connection with the exercise of the Purchase Option. If the Purchase Option is not exercised on or before July 31, 2002, CMDF may require Genzyme and StressGen to effectively repay $2.0 million (Canadian) each of the limited recourse loan. In addition, at any time during the 30-day period commencing on the date when not less than 75% of the initial funding provided by CMDF has been spent by the joint venture, but in no event later that July 31, 1999, CMDF shall have the right (the "Mandatory Purchase Right") to require Genzyme and StressGen to purchase its membership interest at an aggregate purchase price of $10.0 million (Canadian) plus interest thereon at a rate per annum equal to the Canadian prime rate plus 1%. The Mandatory Purchase Right will terminate if not exercised by CMDF during such 30-day period. Genzyme's share of any amounts payable to CMDF upon exercise of the Purchase Option, the Mandatory Purchase Right or repayment of the limited recourse loan may be paid in cash, Genzyme common stock or any combination thereof at the discretion of Genzyme. Genzyme sold three warrants (the "Front-End Warrant", the "NDA Warrant", and the "Callable Warrant", collectively, the "Warrants") to purchase Genzyme common stock to CMDF for an aggregate purchase price of $1.0 million (Canadian). Each warrant is initially exercisable for up to 40,000 shares of GGD Stock and will be converted automatically upon the closing date of the GMO IPO into warrants to purchase GMO Stock as following. The Front-End Warrant is exercisable immediately and will terminate upon the earlier of the exercise of the Mandatory Purchase Right by CMDF or July 31, 2002. The exercise price of the Front-End Warrant is $30.18 per share of GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of a defined conversion price. The NDA Warrant will be exercisable during the one-year period following the filing of the first new drug application with the FDA for a product developed through the collaboration and will terminate upon the earliest of the exercise of the Mandatory Purchase Right by CMDF, the expiration of the Purchase Option or July 31, 2007. The exercise price of the NDA Warrants is $30.18 per share of GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of a defined conversion price. The Callable Warrant will be exercisable during the three-year period following the expiration of the Purchase Option and will terminate upon the earliest of the exercise of the Mandatory Purchase Right by CMDF, the exercise of the Purchase Option or July 31, 2005. The exercise price of the Callable Warrant per share of GGD Stock will be equal to the average of the closing sale prices of the GGD Stock on the Nasdaq National Market for the 20 trading days ending on the expiration date of the Purchase Option, and upon conversion following the GMO IPO, will be equal to the average of closing sale prices of the GMO Stock on the Nasdaq National Market for the 20 trading days ending on the expiration date of the Purchase Option. 33 34 In August 1997, GMO completed a private placement of the GMO Debentures. The GMO Debentures bear interest at 6% per annum and are convertible into shares of GMO Stock beginning no earlier than the 91st day after the completion of the GMO IPO. Beginning on February 26, 1998, the GMO Debentures will be convertible at a discount to the average of the closing bid prices of GMO Stock as reported by the Nasdaq National Market for the 20 trading days immediately preceding the applicable conversion date (the "Market Price"), which discount begins at 7% and will increase by an additional one percent every 30 days thereafter until October 24, 1998. Beginning November 23, 1998, the conversion price will be the lower of (i) 85% of the Market Price calculated as of the actual conversion date and (ii) 85% of the Market Price calculated as of November 22, 1998. In no event, however, will the conversion price be less than $7.70 per share (subject to adjustment in the event of any stock split, stock dividend, reclassification, combination or similar event). In the third quarter of 1997, GMO recorded $16.5 million of proceeds attributed to the value of the debt and $3.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $16.5 million will be accreted to the face value of the debt by a charge to interest expense over the term of the initial 15 month conversion period. EXCHANGE OPTION If GMO has not completed the GMO IPO by August 29, 1998, at the holder's option, the GMO Debentures may be exchanged for GGD Debentures due August 29, 2003. If the GMO IPO is completed before August 29, 1998 but the aggregate proceeds from the offering are less than $15.0 million or GMO's market capitalization is below $90.0 million, at the holder's option, 50% of the GMO Debentures can be exchanged for GGD Debentures. The exchange option must be exercised within 30 business days after August 29, 1998 or the date on which the GMO IPO is consummated. The GGD Debentures, if issued, will be convertible at the option of the holder at any time prior to maturity into shares of GGD Stock at a 13% premium to the average closing bid price of GGD Stock or reported by the Nasdaq National Market for the five trading days immediately preceding the issue date. PUT OPTION If at any time after the 180 day period after completion of the GMO IPO, the conversion price is less than the floor conversion price of $7.70 for every trading day during the Put Review Period, the holder will have the option over the Put Exercise Period to put the GMO Debentures back to GMO for cash compensation. The holder has three options to exercise the put. The first Put Review Period may not commence until 180 days after completion of the GMO IPO. The Put Review Period for the second and third options (assuming the first has occurred) may only commence 90 days after the previous Put Exercise Period has expired. CALL OPTION The GMO Debentures are callable with cash or stock beginning 18 months after the GMO IPO if the stock has closed at 150% of the Fixed Conversion Price for 20 consecutive trading days. The Genzyme Board approved the allocation of up to $25 million in cash from Genzyme General to GMO (the "Equity Line"), subject to a dollar-for-dollar reduction by the proceeds of outside financing received by GMO. As a result of the issuance of the GMO debentures in August 1997, the amount available under the Equity Line was reduced to $5 million. No draws have been made under the Equity Line to date. Upon successful completion of an initial public offering, the Equity Line will terminate. Management of GMO anticipates that existing revenues generated from the sale of SAGE services, SAGE license fees, cash available for allocation to GMO from Genzyme General pursuant to the Equity Line and existing cash balances will be sufficient to fund GMO's operations through 1998. Significant additional funds will be required to complete the clinical testing and commercialization of GMO's products and services. There can be no assurance that such additional funds will be available on favorable terms to GMO or to the existing holders of GMO stock, if at all. In addition, GMO's cash requirements may vary materially from those now planned as a result of factors including progress of GMO's research and development programs, the ability of GMO to establish and maintain additional strategic alliances and licensing arrangements, the progress of GMO's development programs, competing technological and marketing developments, the cost involved in enforcing patent claims and other intellectual property rights and the cost and timing of regulatory approvals. Insufficient funds may require GMO to delay, scale back or eliminate certain of its programs or to license to third parties to commercialize technologies or products that GMO would otherwise undertake itself. Such actions may adversely affect the value of the GMO Stock. 34 35 ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK Not applicable. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The information concerning the Warrants and the GMO Debentures set forth in Part 1, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended September 30, 1997" in the fourth through eleventh paragraphs under "Liquidity and Capital Resources -- Genzyme Molecular Oncology" on pages 33 - 34 of this Report is incorporated herein by reference. Genzyme believes the sale of the GMO Debentures qualifies as a transaction by an issuer not involving a public offering within the meaning of Section 4(2) of the Securities Act (the "Act") based on the manner of offering (a negotiated sale to a limited number of "qualified institutional buyers" (as defined in Rule 501 of the Act) and one "accredited investor" (as defined in Rule 501 of Regulation D under the Act) without general solicitation) and the purchasers' financial status, investment experience and investment intent, as represented to Genzyme. Genzyme believes the sale of the Warrants qualifies as a transaction by an issuer not involving a public offering within the meaning of Section 4(2) of the Securities Act (the "Act") based on the manner of offering (a negotiated sale to a single purchases without general solicitation) and the purchaser's financial status, investment experience and investment intent, as represented to Genzyme. Genzyme further believes the offer and sale of the Warrants also qualifies for the safe harbor for offers and sales outside the United States provided under Rule 903 of Regulation S under the Act since (i) the offer and sale were made in an offshore transaction, (ii) no directed selling efforts were engaged in by Genzyme, (iii) offering restrictions were implemented and (iv) CMDF is not a U.S. person. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Exhibit Index following the signature page to this Form 10-Q. (b) Reports on Form 8-K None. 35 36 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 1997 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENZYME CORPORATION DATE: November 14, 1997 By: /s/ David J. McLachlan ----------------------------------- David J. McLachlan Duly Authorized Officer and Executive Vice President, Finance; Chief Financial Officer 36 37 GENZYME CORPORATION AND SUBSIDIARIES Form 10-Q, September 30, 1997 EXHIBIT INDEX
Exhibit No. Description - ------- ----------- 10.1 Registration Rights Agreement dated as of July 31, 1997 by and between Genzyme and Canadian Medical Discoveries Fund, Inc. Filed herewith. 10.2 Genzyme Common Stock Purchase Warrant No. A-1 dated July 31, 1997 issued to Canadian Medical Discoveries Fund, Inc. Filed herewith. 10.3 Genzyme Common Stock Purchase Warrant No. A-2 dated July 31, 1997 issued to Canadian Medical Discoveries Fund, Inc. Filed herewith. 10.4 Genzyme Common Stock Purchase Warrant No. A-3 dated July 31, 1997 issued to Canadian Medical Discoveries Fund, Inc. Filed herewith. 10.5 Purchase Agreement dated as of August 29, 1997 by and among Genzyme Corporation and the entities listed on the signature pages thereto. Filed herewith. Pursuant to Item 601(b)(2) of Regulation S-K, the disclosure schedules referred to in the Purchase Agreement are omitted. Genzyme hereby undertakes to furnish supplementally a copy of any omitted schedule to the Commission upon request. 10.6 Genzyme Molecular Oncology Division Convertible Debenture dated August 29, 1997, including a schedule with respect thereto filed pursuant to Instruction 2 to Item 601 of Regulation S-K. Filed herewith. 10.7 Form of Genzyme General Division Convertible Debenture. Filed herewith. 10.8 Registration Rights Agreement dated as of August 29, 1997 by and among Genzyme and the entities listed on the signature pages thereto. Filed herewith. 10.9 Amended and Restated Convertible Debt Agreement dated as of September 4, 1997 by and between Genzyme and Genzyme Transgenics Corporation. Filed as Exhibit 10.4 to the Genzyme Transgenics Corporation Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (Commission File No. 0-21794) and incorporated herein by reference. 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith. 27 Financial Data Schedules for Genzyme General and Genzyme Tissue Repair (for EDGAR filing purposes only). Filed herewith.
37 EX-10.1 2 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT This Agreement dated as of July 31, 1997 is entered into by and between Genzyme Corporation, a Massachusetts corporation (the "Company"), and Canadian Medical Discoveries Fund Inc. (the "Purchaser"). WHEREAS, the Company and the Purchaser have entered into a series of three warrant agreements of even date herewith (collectively, the "Warrants") pursuant to which the Purchaser has the right, subject to the respective terms and conditions of the Warrants, to acquire shares of the Company's Common Stock (as defined below); and WHEREAS, the Company and the Purchaser desire to provide for certain arrangements with respect to the registration of resales of shares of the Company's Common Stock issued upon exercise of the Warrants under the Securities Act of 1933, as amended. NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" means the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act. "COMMON STOCK" means the series of common stock of the Company issuable upon exercise of the Warrants, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "GMO IPO" means the first underwritten public offering for the account of the Company of shares of Genzyme Molecular Oncology Division Common Stock, $.01 par value per share (the "GMO Stock"), on a firm commitment basis pursuant to a Registration Statement (as defined below) filed with the Commission covering such offering. "REGISTRABLE SHARES" means (i) the shares of Common Stock issued upon exercise of the Warrants, (ii) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares (i) upon any sale 2 pursuant to a Registration Statement, Section 4(1) of the Securities Act or Rule 144 under the Securities Act or (ii) upon any sale in any manner to a person or entity which, by virtue of Section 11 of this Agreement, is not entitled to the rights provided by this Agreement. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, the determination of such percentage shall include shares of Common Stock issuable upon exercise of the Warrants even if such exercise has not yet been effected. "REGISTRATION EXPENSES" means the expenses described in Section 4. "REGISTRATION STATEMENT" means a registration statement filed by the Company with the Commission for a public offering and sale of Common Stock (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "STOCKHOLDERS" means the Purchaser and any persons or entities to whom the rights granted under this Agreement are transferred by the Purchaser, their successors or assigns pursuant to Section 11 hereof. 2. REQUIRED REGISTRATIONS. a. At any time after the issuance of Registrable Shares, a Stockholder or Stockholders may request, in writing, that the Company effect the registration on Form S-3 (or any successor form) of Registrable Shares owned by such Stockholder or Stockholders having an aggregate offering price, net of underwriting discounts and commissions, of at least $500,000 (based on the then current market price or fair value). If the holders initiating the registration intend to distribute the Registrable Shares by means of an underwriting, they shall so advise the Company in their request. In the event such registration is underwritten, the right of other Stockholders to participate shall be conditioned on such Stockholders' participation in such underwriting and the inclusion of such Stockholders' Registrable Shares in the underwriting to the extent provided in this Section 2. The Company and all Stockholders proposing to distribute their Registrable Shares through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all Stockholders. Such Stockholders shall have the right, by giving written notice to the Company within 30 days after the Company provides its -2- 3 notice, to elect to have included in such registration such of their Registrable Shares as such Stockholders may request in such notice of election; provided that if the underwriter (if any) managing the offering determines that, because of marketing factors, all of the Registrable Shares requested to be registered by all Stockholders may not be included in the offering, then all Stockholders who have requested registration shall participate in the registration pro rata based upon the number of Registrable Shares which they have requested to be so registered. Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration on Form S-3 (or any successor form) of all Registrable Shares which the Company has been requested to so register. b. The Company shall not be required to effect more than one registration pursuant to paragraph (a) above during any twelve-month period and no more than three such registrations in the aggregate. In addition, the Company shall not be required to cause or permit any Registration Statement to become effective pursuant to this Section 2 during the 180-day period after the closing date of the GMO IPO. c. If at the time of any request to register Registrable Shares pursuant to this Section 2, the Company is engaged or has fixed plans to engage within 30 days of the time of the request in a registered public offering or is engaged in any other activity which, in the good faith determination of the Company's Board of Directors, would be adversely affected by the requested registration to the material detriment of the Company, then the Company may at its option direct that such request be delayed for a period not in excess of three months from the effective date of such offering or the date of commencement of such other material activity, as the case may be, such right to delay a request to be exercised by the Company not more than once in any twelve-month period. 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall: a. file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become and remain effective; b. as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective, in the case of a firm commitment underwritten public offering, until each underwriter has completed the distribution of all securities purchased by it and, in the case of any other offering, until the earlier of the sale of all Registrable Shares covered thereby or 120 days after the effective date thereof; -3- 4 c. as expeditiously as possible furnish to each selling Stockholder such reasonable numbers of copies of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Stockholder; and d. as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the selling Stockholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the selling Stockholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Stockholder; PROVIDED, HOWEVER, that the Company shall not be required in connection with this paragraph (d) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction. If the Company has delivered preliminary or final prospectuses to the selling Stockholders and after having done so the prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Stockholders and, if requested, the selling Stockholders shall immediately cease making offers of Registrable Shares and return all prospectuses to the Company. The Company shall promptly provide the selling Stockholders with revised prospectuses and, following receipt of the revised prospectuses, the selling Stockholders shall be free to resume making offers of the Registrable Shares. 4. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses of all registrations under this Agreement; PROVIDED, HOWEVER, that if a registration under Section 2 is withdrawn at the request of the Stockholders requesting such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the Stockholders after the date on which such registration was requested) and if the requesting Stockholders elect not to have such registration counted as a registration requested under Section 2, the requesting Stockholders shall pay the Registration Expenses of such registration pro rata in accordance with the number of their Registrable Shares included in such registration. For purposes of this Section 4, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of counsel for the Company and the fees and expenses of one counsel to represent the selling Stockholders (which counsel shall also be counsel to the Company unless counsel to the Company has a conflict of interest with respect to the representation of any selling Stockholder or the underwriter managing the offering objects to the representation of the selling Stockholders by Company counsel, in which case the -4- 5 Company shall pay the fees and expenses of one separate counsel selected by the selling Stockholders), state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of selling Stockholders' own counsel (other than the counsel representing all selling Stockholders). 5. INDEMNIFICATION AND CONTRIBUTION. a. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless, to the full extent permitted by law, the seller of such Registrable Shares, each underwriter of such Registrable Shares, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission (i) made in such Registration Statement, preliminary prospectus or final prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such seller, underwriter or controlling person specifically for use in the preparation thereof; or (ii) contained in a preliminary prospectus and corrected in a final or amended prospectus if such seller, underwriter or controlling person received notice of such final or amended prospectus prior to the effective date of the Registration Statement but failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Shares to the person asserting such loss, claim, damage or liability, in any case where such delivery is required by the Securities Act. b. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, -5- 6 severally and not jointly, will indemnify and hold harmless, to the full extent permitted by law, the Company, each of its directors and officers, each underwriter (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act and each other seller of Registrable Shares, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter, controlling person or seller may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; and will reimburse the Company, each of its directors and officers, each such underwriter and controlling person and each other such seller of Registrable Shares for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the obligations of such Stockholders hereunder shall be limited to an amount equal to the proceeds to each Stockholder of Registrable Shares sold in connection with such registration. c. Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5 unless and to the extent that such failure results in the forfeiture of substantive rights or defenses by the Indemnifying Party. The Indemnified Party may participate in such defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to -6- 7 entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party and the Indemnifying Party shall not be required to indemnify any Indemnified Party for any amount paid or payable by such Indemnified Party in settlement of any claim or litigation without such consent. 6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Section 2, the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of an issuer of the securities being registered and customary covenants and agreements to be performed by such issuer, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering. 7. INFORMATION BY HOLDER. Each Stockholder including Registrable Shares in any registration shall furnish to the Company such information regarding such Stockholder and the distribution proposed by such Stockholder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 8. RULE 144 REQUIREMENTS. The Company agrees to: a. comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about the Company; b. file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, and c. furnish to any holder of Registrable Shares upon request (i) a written statement by the Company as to its compliance with the requirements of said Rule 144(c), and the reporting requirements of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. 9. MERGERS, ETC. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the -7- 8 surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to "Registrable Shares" shall be deemed to be references to the securities which the Stockholders would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation or reorganization; PROVIDED, HOWEVER, that the provisions of this Section 9 shall not apply in the event of any merger, consolidation or reorganization in which the Company is not the surviving corporation if all Stockholders are entitled to receive in exchange for their Registrable Shares consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Securities Act, or (iii) securities of the acquiring corporation which the acquiring corporation has agreed to register within 90 days of completion of the transaction for resale to the public pursuant to the Securities Act. 10. TERMINATION. All of the Company's obligations to register Registrable Shares of a Stockholder under this Agreement shall terminate on the earlier of (i) the tenth anniversary of this Agreement or (ii) such time as such Stockholder can sell all of the Registrable Shares which such Holder then holds at one time pursuant to Rule 144 under the Securities Act without regard to or in violation of the volume limitations imposed by Rule 144. 11. TRANSFERS OF RIGHTS. This Agreement, and the rights and obligations of each Purchaser hereunder, may be assigned by such Purchaser to any person or entity that acquires or that would own after such transfer at least ten percent (10%) of the total number of Registrable Shares, and such transferee shall be deemed a "Purchaser" for purposes of this Agreement; provided that the transferee provides written notice of such assignment to the Company and agrees in writing to be bound by all of the provisions of this Agreement. 12. "MARKET STAND-OFF" AGREEMENT. Upon receipt of a written request by the Company and its underwriter, the Stockholders shall not sell, sell short, grant an option to buy, or otherwise dispose of shares of the Company's Common Stock or other securities of the Company for a period of one hundred and eighty (180) days following the closing date of the GMO IPO; PROVIDED, HOWEVER, that the agreement described in this Section 12 shall not apply unless all executive officers and directors of the Company enter into similar agreements. Such agreement shall be in writing and in form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of the 180-day period. 13. GENERAL. -8- 9 a. NOTICES. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand or mailed by first class certified or registered mail, return receipt requested, postage prepaid: If to the Company, at Genzyme Corporation, Attention: General Counsel, or at such other address or addresses as may have been furnished in writing by the Company to the Purchaser; or If to a Stockholder, at the address set forth on EXHIBIT A, or at such other address or addresses as may have been furnished to the Company in writing by the Purchaser, with a copy to Hale and Dorr LLP, 60 State Street, Boston, MA 02109 Attention: Steven D. Singer, Esq. Notices provided in accordance with this Section 13(a) shall be deemed delivered upon personal delivery or two business days after deposit in the mail. b. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. c. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of at least [66%] of the Registrable Shares then outstanding; PROVIDED, that this Agreement may be amended with the consent of the holders of less than all Registrable Shares only in a manner which affects all Registrable Shares in the same fashion. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. d. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document. e. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. f. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. -9- 10 Executed as of the date first written above. GENZYME CORPORATION By: /s/ David J. McLachlan ---------------------------------- Title: Executive Vice President ------------------------------ CANADIAN MEDICAL DISCOVERIES FUND INC. By: /s/ E. Rygiel ---------------------------------- Title: Director ------------------------------- By: /s/ R. Lockie ---------------------------------- Title: Chief Financial Officer ------------------------------- -10- EX-10.2 3 COMMON STOCK PURCHASE WARRANT (A-1) 1 EXHIBIT 10.2 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT Warrant No. A-1 Number of Shares: 40,000 (subject to adjustment) Date of Issuance: July 31, 1997 GENZYME CORPORATION COMMON STOCK PURCHASE WARRANT (Void after July 31, 2002) Genzyme Corporation, a Massachusetts corporation (the "Company"), for value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below and provided this Warrant has not terminated as provided in Section 7 hereof, to purchase from the Company, at any time or from time to time on or after the date of issuance and on or before July 31, 2002, at not later than 5:00 p.m. (Boston, Massachusetts time) (the "Exercise Period"), Forty Thousand (40,000) shares (the "Original Share Number") of Genzyme General Division Common Stock, $.01 par value per share, of the Company ("GGD Stock"), at a purchase price per share of GGD Stock equal to $30.18 (as adjusted from time to time pursuant to the provisions of this Warrant, the "Purchase Price"). Notwithstanding any provision hereof to the contrary, upon the closing date of the first underwritten public offering by the Company of shares of Genzyme Molecular Oncology Division Common Stock, $.01 par value per share (the "GMO Stock"), on a firm commitment basis pursuant to a registration statement filed with the U.S. Securities and Exchange Commission covering such offering (the "GMO IPO") and provided that the GMO Stock is then listed and approved for trading on the Nasdaq National Market (or another national exchange) (such date being hereinafter referred to as the "Listing Date"), this Warrant, with no further action required on the part of any party, shall represent solely the right to purchase that number of shares of GMO Stock equal to the Original Share Number multiplied by the Conversion Ratio. The "Conversion Ratio" is the amount obtained by the following formula: (a) $25.15; 2 divided by (b) the lower of (i) $7.00 plus the product of (1) (A) the offering price to the public of the GMO Stock in the GMO IPO (the "IPO Price"); minus (B) $7.00; multiplied by (2) (A) the total number of calendar days elapsed between March 4, 1997 and the date of issuance; divided by (B) the total number of calendar days elapsed between March 4, 1997 and the Listing Date; or (ii) the IPO Price (the lower of the amounts determined under clauses (i) and (ii) is herein referred to as the "GMO Conversion Price"). The term "Common Stock" shall mean the class of common stock of the Company purchasable upon exercise of this Warrant, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor. The shares of capital stock purchasable upon exercise of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares." Effective upon the Listing Date, the Purchase Price shall be adjusted to an amount equal to (a) the GMO Conversion Price multiplied by (b) 120%. 1. EXERCISE. (a) This Warrant may be exercised during the Exercise Period by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as EXHIBIT I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the -2- 3 Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by canceling that number of Warrant Shares subject to this Warrant equal to the quotient determined by dividing (i) the total Purchase Price payable in respect of the number of Warrant Shares being purchased upon such exercise by (ii) the Fair Market Value per share of Common Stock as of the effective date of exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date"). If the Registered Holder wishes to exercise this Warrant pursuant to this method of payment with respect to the maximum number of Warrant Shares purchasable pursuant to this method, then the number of Warrant Shares so purchasable shall be equal to the total number of Warrant Shares, minus the product obtained by multiplying (x) the total number of Warrant Shares by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system, or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the last reported sale price per share of Common Stock thereon on the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the Fair Market Value per share of Common Stock shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Exercise Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the fair market value per share of the Common Stock -3- 4 (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make such a determination within 15 days of a request by the Registered Holder that it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the sum of (a) the number of such shares purchased by the Registered Holder upon such exercise plus (b) the number of Warrant Shares (if any) covered by the portion of this Warrant cancelled in payment of the Purchase Price payable upon such exercise pursuant to subsection 1(b) above. 2. ADJUSTMENTS. (a) GENERAL. The Purchase Price shall be subject to adjustment from time to time pursuant to the terms of this Section 2. (b) RECAPITALIZATIONS. If during the Exercise Period the outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or -4- 5 immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. (c) MERGERS, ETC. If during the Exercise Period there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(b) above), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, then, as part of any such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or sale, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment is required to be made in the Purchase Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to be made pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following such adjustment. 3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor -5- 6 in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. REQUIREMENTS FOR TRANSFER. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for (i) a transfer by a Registered Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner, if the transferee agrees in writing to be subject to the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act. (c) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. -6- 7 6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a distribution on the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company will pay or distribute to the Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Liquidating Dividend which would have been paid to such Registered Holder if he had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Liquidating Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends or distribution are to be determined. 7. TERMINATION. In the event that the Canadian Medical Discoveries Fund Inc. ("CMDF") exercises its rights as set forth in Section 8.6 of the Operating Agreement of even date herewith between CMDF, the Company and StressGen Gene Therapies Inc., this Warrant shall terminate upon the Closing Date (as therein defined) of the exercise of such rights and, upon such termination, the Registered Holder shall have no further rights hereunder. 8. NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) -7- 8 shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 9. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 12. TRANSFERS, ETC. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of EXHIBIT II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer -8- 9 hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. MAILING OF NOTICES, ETC. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 15. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant will be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. GENZYME CORPORATION By: /s/ David J. McLachlan ------------------------------- [Corporate Seal] Title: Executive Vice President ---------------------------- ATTEST: /s/ Peter Wirth - --------------------------- -9- 10 EXHIBIT I PURCHASE FORM To:_________________ Dated:____________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. A-1), hereby irrevocably elects to purchase _____ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, representing the full purchase price for such shares at the price per share provided for in such Warrant. Such payment takes the form of (check applicable box or boxes): [ ] $______ in lawful money of the United States; and/or [ ] The cancellation of such portion of the attached Warrant as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation). CANADIAN MEDICAL DISCOVERIES FUND, INC. By:____________________________________ Address:_______________________________ _______________________________________ 11 EXHIBIT II ASSIGNMENT FORM FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. A-1) with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name Of Assignee Address No. Of Shares - ---------------- ------- ------------- Dated:_____________________ Signature:___________________________________ Dated:_____________________ Witness:_____________________________________
EX-10.3 4 COMMON STOCK PURCHASE WARRANT (A-2) 1 EXHIBIT 10.3 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT Warrant No. A-2 Number of Shares: 40,000 (subject to adjustment) Date of Issuance: July 31, 1997 GENZYME CORPORATION COMMON STOCK PURCHASE WARRANT (Void after July 31, 2007) Genzyme Corporation, a Massachusetts corporation (the "Company"), for value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below and provided this Warrant has not terminated as provided in Section 7 hereof, to purchase from the Company, at any time or from time to time on or after the Effective Date (as defined below) and on or before the earlier of (i) the date one (1) year after the Effective Date, at not later than 5:00 p.m. (Boston, Massachusetts time) or (ii) July 31, 2007, at not later than 5:00 p.m. (Boston, Massachusetts time) (the "Exercise Period"), Forty Thousand (40,000) shares of Genzyme General Division Common Stock, $.01 par value per share, of the Company ("GGD Stock"), at a purchase price per share of GGD Stock equal to $30.18 (as the same may be adjusted from time to time pursuant to the provisions of this Warrant, the "Purchase Price"). The "Effective Date" shall mean the date that a new drug application is filed with the U.S. Food and Drug Administration after completion of human clinical trials to obtain marketing approval for a Collaboration Product (as defined in the Collaboration Agreement dated as of July , 1997 among the Company, Canadian Medical Discoveries Fund Inc. ("CMDF"), StressGen Biotechnologies Corp., StressGen Gene Therapies Inc. and StressGen/Genzyme LLC). Notwithstanding any provision hereof to the contrary, upon the closing date of the first underwritten public offering by the Company of shares of Genzyme Molecular Oncology Division Common stock, $.01 par value per share (the "GMO Stock"), on a firm commitment basis pursuant to a registration statement filed with the U.S. Securities and Exchange Commission covering such offering (the "GMO IPO") and provided that the GMO Stock is then listed and approved for trading on the Nasdaq National Market (or another national exchange) (such date being hereinafter referred to as the "Listing Date"), this Warrant, with no further action 2 required on the part of any party, shall represent solely the right to purchase that number of shares of GMO Stock equal to the Original Share Number multiplied by the Conversion Ratio. The "Conversion Ratio" is the amount obtained by the following formula: (a) $25.15; divided by (b) the lower of (i) $7.00 plus the product of (1) (A) the offering price to the public of the GMO Stock in the GMO IPO (the "IPO Price"); minus (B) $7.00; multiplied by (2) (A) the total number of calendar days elapsed between March 4, 1997 and the date of issuance; divided by (B) the total number of calendar days elapsed between March 4, 1997 and the Listing Date; or (ii) the IPO Price (the lower of the amounts determined under clauses (i) and (ii) is herein referred to as the "GMO Conversion Price"). The term "Common Stock" shall mean the class of common stock of the Company purchasable upon exercise of this Warrant, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor. The shares of capital stock purchasable upon exercise of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares." Effective upon the Listing Date, the Purchase Price shall be adjusted to an amount equal to (a) the GMO Conversion Price multiplied by (b) 120%. 1. EXERCISE. -2- 3 (a) This Warrant may be exercised during the Exercise Period by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as EXHIBIT I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by canceling that number of Warrant Shares subject to this Warrant equal to the quotient determined by dividing (i) the total Purchase Price payable in respect of the number of Warrant Shares being purchased upon such exercise by (ii) the Fair Market Value per share of Common Stock as of the effective date of exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date"). If the Registered Holder wishes to exercise this Warrant pursuant to this method of payment with respect to the maximum number of Warrant Shares purchasable pursuant to this method, then the number of Warrant Shares so purchasable shall be equal to the total number of Warrant Shares, minus the product obtained by multiplying (x) the total number of Warrant Shares by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system, or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the last reported sale price per share of Common Stock thereon on the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the Fair Market Value per share of Common Stock shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the -3- 4 foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Exercise Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make such a determination within 15 days of a request by the Registered Holder that it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the sum of (a) the number of such shares purchased by the Registered Holder upon such exercise plus (b) the number of Warrant Shares (if any) covered by the portion of this Warrant cancelled in payment of the Purchase Price payable upon such exercise pursuant to subsection 1(b) above. 2. ADJUSTMENTS. (a) GENERAL. The Purchase Price shall be subject to adjustment from time to time pursuant to the terms of this Section 2. (b) RECAPITALIZATIONS. If during the Exercise Period the outstanding -4- 5 shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. (c) MERGERS, ETC. If during the Exercise Period there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(b) above), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, then, as part of any such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or sale, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment is required to be made in the Purchase Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to be made pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which -5- 6 this Warrant shall be exercisable following such adjustment. 3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. REQUIREMENTS FOR TRANSFER. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for (i) a transfer by a Registered Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner, if the transferee agrees in writing to be subject to the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act. (c) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of -6- 7 all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a distribution on the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company will pay or distribute to the Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Liquidating Dividend which would have been paid to such Registered Holder if he had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Liquidating Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends or distribution are to be determined. 7. TERMINATION. In the event that the CMDF exercises its rights (i) as set forth in Section 8.6 of the Operating Agreement of even date herewith between CMDF, the Company and StressGen Gene Therapies Inc. (the "Operating Agreement"), or (ii) as set forth in Section 10.4 of the Operating Agreement, this Warrant shall terminate upon (1) in case of the preceding clause (i), the Closing Date (as defined in the Operating Agreement) of the exercise of such rights, or (2) in case of the preceding clause (ii), the effective date of the notice provided by CMDF in accordance with the first sentence of said Section 10.4 and, upon any such termination, the Registered Holder shall have no further rights hereunder. 8. NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date -7- 8 on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 9. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 12. TRANSFERS, ETC. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of EXHIBIT II hereto) at the principal -8- 9 office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. MAILING OF NOTICES, ETC. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 15. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant will be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. -9- 10 GENZYME CORPORATION By: /s/ David J. McLachlan ------------------------------- [Corporate Seal] Title: Executive Vice President ---------------------------- ATTEST: /s/ Peter Wirth - --------------------------- -10- 11 EXHIBIT I PURCHASE FORM To:_________________ Dated:____________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. A-1), hereby irrevocably elects to purchase _____ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, representing the full purchase price for such shares at the price per share provided for in such Warrant. Such payment takes the form of (check applicable box or boxes): [ ] $______ in lawful money of the United States; and/or [ ] The cancellation of such portion of the attached Warrant as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation). CANADIAN MEDICAL DISCOVERIES FUND, INC. By:____________________________________ Address:_______________________________ _______________________________________ 12 EXHIBIT II ASSIGNMENT FORM FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. A-1) with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name Of Assignee Address No. Of Shares - ---------------- ------- ------------- Dated:_____________________ Signature:____________________________________ Dated:_____________________ Witness:______________________________________
EX-10.4 5 COMMON STOCK PURCHASE WARRANT (A-3) 1 EXHIBIT 10.4 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT Warrant No. A-3 Number of Shares: 40,000 (subject to adjustment) Date of Issuance: July 31, 1997 GENZYME CORPORATION COMMON STOCK PURCHASE WARRANT (Void July 31, 2005) Genzyme Corporation, a Massachusetts corporation (the "Company"), for value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below and provided this Warrant has not terminated as provided in Section 7 hereof, to purchase from the Company, at any time, or from time to time, on or after July 31, 2005 (the "Effective Date") and on or before the date three years after the Effective Date, at not later than 5:00 p.m. (Boston, Massachusetts time) (the "Exercise Period"), Forty Thousand (40,000) shares of Genzyme General Division Common Stock, $.01 par value per share, of the Company ("GGD Stock"), at a purchase price per share of GGD Stock equal to the Purchase Price. The "Purchase Price" shall equal the average of the last reported sale price of the GGD Stock on the Nasdaq National Market (or any other national exchange upon which the Company's Common Stock may then be listed) for each of the twenty (20) trading days preceding the Effective Date. Notwithstanding any provision hereof to the contrary, upon the closing date of the first underwritten public offering by the Company of shares of Genzyme Molecular Oncology Division Common Stock, $.01 par value per share (the "GMO Stock"), on a firm commitment basis pursuant to a registration statement filed with the U.S. Securities and Exchange Commission covering such offering (the "GMO IPO") and provided that the GMO Stock is then listed and approved for trading on the Nasdaq National Market (or another national exchange) (such date being hereinafter referred to as the "Listing Date"), this Warrant, with no further action required on the part of any party, shall represent solely the right to purchase that number of shares of GMO Stock equal to the Original Share Number multiplied by the Conversion Ratio. The "Conversion Ratio" is the amount obtained by the following formula: 2 (a) $25.15; divided by (b) the lower of (i) $7.00 plus the product of (1) (A) the offering price to the public of the GMO Stock in the GMO IPO (the "IPO Price"); minus (B) $7.00; multiplied by (2) (A) the total number of calendar days elapsed between March 4, 1997 and the date of issuance; divided by (B) the total number of calendar days elapsed between March 4, 1997 and the Listing Date; or (ii) the IPO Price (the lower of the amounts determined under clauses (i) and (ii) is herein referred to as the "GMO Conversion Price"). The term "Common Stock" shall mean the class of common stock of the Company purchasable upon exercise of this Warrant, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor. The shares of capital stock purchasable upon exercise of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be, together with any other equity securities that may be issued by the Company in connection therewith or in substitution therefor, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares." Effective upon the Listing Date, the Purchase Price shall be adjusted to an amount equal to the average of the last reported sale price of the GMO Stock on the Nasdaq National Market (or any other national exchange upon which the Tracking Stock may then be listed) for each of the twenty (20) trading days preceding the Effective Date. 1. EXERCISE. (a) This Warrant may be exercised during the Exercise Period by the -2- 3 Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as EXHIBIT I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by canceling that number of Warrant Shares subject to this Warrant equal to the quotient determined by dividing (i) the total Purchase Price payable in respect of the number of Warrant Shares being purchased upon such exercise by (ii) the Fair Market Value per share of Common Stock as of the effective date of exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date"). If the Registered Holder wishes to exercise this Warrant pursuant to this method of payment with respect to the maximum number of Warrant Shares purchasable pursuant to this method, then the number of Warrant Shares so purchasable shall be equal to the total number of Warrant Shares, minus the product obtained by multiplying (x) the total number of Warrant Shares by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system, or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the last reported sale price per share of Common Stock thereon on the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the Fair Market Value per share of Common Stock shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market, the Nasdaq system or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the -3- 4 three-month period prior to the Exercise Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make such a determination within 15 days of a request by the Registered Holder that it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the sum of (a) the number of such shares purchased by the Registered Holder upon such exercise plus (b) the number of Warrant Shares (if any) covered by the portion of this Warrant cancelled in payment of the Purchase Price payable upon such exercise pursuant to subsection 1(b) above. 2. ADJUSTMENTS. (a) GENERAL. The Purchase Price shall be subject to adjustment from time to time pursuant to the terms of this Section 2. (b) RECAPITALIZATIONS. If during the Exercise Period outstanding -4- 5 shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. (c) MERGERS, ETC. If during the Exercise Period there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(b) above), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, then, as part of any such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or sale, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment is required to be made in the Purchase Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to be made pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which -5- 6 this Warrant shall be exercisable following such adjustment. 3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. REQUIREMENTS FOR TRANSFER. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for (i) a transfer by a Registered Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner, if the transferee agrees in writing to be subject to the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act. (c) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of -6- 7 all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a distribution on the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company will pay or distribute to the Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Liquidating Dividend which would have been paid to such Registered Holder if he had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Liquidating Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends or distribution are to be determined. 7. TERMINATION. In the event that (i) the option to purchase the membership interest of Canadian Medical Discoveries Fund Inc. ("CMDF") in StressGen/Genzyme LLC is exercised in accordance with Section 8.5 of the Operating Agreement of even date herewith between CMDF, the Company and StressGen Gene Therapies Inc. (the "Operating Agreement"), or (ii) in the event that CMDF exercises its rights as set forth in Section 8.6 of the Operating Agreement, this warrant shall terminate upon (1) in the case of the preceding clause (i), the Closing Date (as defined in the Operating Agreement) of the option exercise, or (2) in case of the preceding clause (ii), the Closing Date (as defined in the Operating Agreement) of the exercise of such rights and, upon any such termination, the Registered Holder shall have no further rights hereunder. 8. NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, -7- 8 then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 9. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 12. TRANSFERS, ETC. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all -8- 9 rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of EXHIBIT II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. MAILING OF NOTICES, ETC. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 15. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 16. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 17. GOVERNING LAW. This Warrant will be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. -9- 10 GENZYME CORPORATION By: /s/ David J. McLachlan ------------------------------- [Corporate Seal] Title: Executive Vice President ---------------------------- ATTEST: /s/ Peter Wirth - --------------------------- 11 EXHIBIT I PURCHASE FORM To:_________________ Dated:____________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. A-3), hereby irrevocably elects to purchase _____ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, representing the full purchase price for such shares at the price per share provided for in such Warrant. Such payment takes the form of (check applicable box or boxes): [ ] $______ in lawful money of the United States; and/or [ ] The cancellation of such portion of the attached Warrant as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation). CANADIAN MEDICAL DISCOVERIES FUND, INC. By:____________________________________ Address:_______________________________ _______________________________________ 12 EXHIBIT II ASSIGNMENT FORM FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. A-3) with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name Of Assignee Address No. Of Shares - ---------------- ------- ------------- Dated:_____________________ Signature:__________________________________ Dated:_____________________ Witness:____________________________________
EX-10.5 6 PURCHASE AGREEMENT 1 EXHIBIT 10.5 PURCHASE AGREEMENT PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 29, 1997, by and among Genzyme Corporation, a Massachusetts corporation (the "COMPANY"), and the entities whose names appear on the signature pages hereof. Such entities are each referred to herein as a "PURCHASER" and, collectively, as the "PURCHASERS". The Company wishes to sell and each Purchaser wishes to buy, subject to the terms and conditions set forth in this Agreement, a convertible debenture of the Company in the principal amount set forth on the signature page hereof executed by such Purchaser, having the terms and conditions and in the form attached hereto as EXHIBIT A (a "GMO DEBENTURE" and, when taken together with all of the debentures issued to the other Purchasers hereunder at the Closing (as defined below), the "GMO DEBENTURES"), in reliance on the exemption from securities registration afforded by the provisions of Section 4(2) under the Securities Act of 1933, as amended (the "SECURITIES ACT"). The GMO Debentures are convertible into shares of Genzyme Molecular Oncology Division Common Stock, $.01 par value (the "GMO STOCK"), and exchangeable under certain conditions into Genzyme GGD Debentures in the form attached hereto as EXHIBIT B (the "GGD DEBENTURES"). The GGD Debentures, if and when issued, are convertible into shares of the Company's General Division Common Stock, $.01 par value (the "GGD STOCK"). The term (i) "DEBENTURES" shall mean, collectively, the GMO Debentures and, upon issuance, the GGD Debentures, (ii) "CONVERSION SHARES" shall mean, at any time, the aggregate of (x) the number of shares of GMO Stock that are issued or issuable upon conversion of the GMO Debentures and (y) the number of shares of GGD Stock that are issued or issuable upon conversion of the GGD Debentures, (iii) "INTEREST PAYMENT SHARES" shall mean the shares of GMO Stock or GGD Stock, as the case may be, issued by the Company in payment of interest on the Debentures in accordance with the terms thereof and (iv) "SECURITIES" shall mean, collectively, the GMO Debentures and, upon issuance, the GGD Debentures, the Conversion Shares and the Interest Payment Shares. The parties hereto agree as follows: 1. PURCHASE AND SALE OF DEBENTURES. 1.1 AGREEMENT TO PURCHASE AND SELL. Upon the terms and subject to the conditions set forth herein, the Company agrees to sell at the Closing (as defined below), and each Purchaser agrees to purchase, a GMO Debenture in the principal amount set forth on the signature page hereof executed by such Purchaser, at a purchase price equal to such principal amount (the "PURCHASE PRICE"). 1.2 CLOSING. Subject to the satisfaction of the conditions set forth herein, the closing of the purchase and sale of the GMO Debentures (the "CLOSING") will be deemed to occur when this Agreement, and the other Transaction Documents (as defined below), have been executed and delivered by both the Company and each Purchaser, and full payment of the amount of the Purchase Price payable by each Purchaser has been made by such Purchaser by wire transfer of same day 2 funds to an account designated by the Company against delivery by the Company of a duly executed GMO Debenture to such Purchaser. The date on which the Closing is deemed to occur is referred to herein as the "CLOSING DATE". 1.3 CERTAIN DEFINITIONS. When used herein, (A) "business day" shall mean any day on which the New York Stock Exchange and commercial banks in the cities of Boston and New York are open for business and (B) an "affiliate" of a party shall mean any person or entity controlling, controlled by or under common control with that party. 2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser, solely with respect to it, hereby makes the following representations and warranties to the Company (which shall be true as of the Closing and as of any such later date as contemplated hereunder) and agrees with the Company that: 2.1 AUTHORIZATION; ENFORCEABILITY. Such Purchaser is duly and validly organized, validly existing and in good standing as a corporation under the laws of the state of its incorporation with full power and authority to purchase the Securities and to execute and deliver this Agreement. This Agreement and the Registration Rights Agreement of even date herewith among the Company and the Purchasers (the "REGISTRATION RIGHTS AGREEMENT") each constitutes such Purchaser's valid and legally binding obligation, enforceable in accordance with its terms, except as such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 2.2 ACCREDITED INVESTOR; INVESTMENT INTENT. Such Purchaser is (i) an accredited investor, as defined in Rule 501 of Regulation D under the Securities Act, (ii) an institution and (iii) except as otherwise disclosed on the signature page hereto executed by such Purchaser, a "qualified institutional buyer" as defined in Rule 144A under the Securities Act. Such Purchaser is acquiring the Securities solely for such Purchaser's own account for investment purposes as a principal and not with a view to the public resale or distribution of all or any part thereof; PROVIDED, HOWEVER, that in making such representation, such Purchaser does not agree to hold the Securities for any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the Securities at any time in accordance with the provisions of this Agreement and the Registration Rights Agreement and with Federal and state securities laws applicable to such sale, transfer or disposition. 2.3 INFORMATION. The Company has provided such Purchaser with certain written information regarding the Company and has granted to such Purchaser the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the terms and conditions of the purchase and sale of the Securities hereunder, and the Company and its business and prospects. -2- 3 2.4 LIMITATIONS ON DISPOSITION. Such Purchaser acknowledges that, except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act or any state securities laws and applicable rules and regulations, and may not be transferred unless and until: (a) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b)(i) such Purchaser shall have notified the Company in advance of the proposed disposition, and (ii) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Securities Act. It is agreed that no opinion of counsel will be required for the transfer of the Securities or any interest therein to an affiliate of such Purchaser or with respect to a sale thereof made pursuant to Rule 144 under the Securities Act (or any successor provision)("RULE 144"); PROVIDED, HOWEVER, that prior to any sale made pursuant to Rule 144, such Purchaser will furnish to the Company, upon its request, a certificate setting forth such representations as are customarily given by a selling shareholder to the issuer in a Rule 144 transaction. 2.5 LEGEND. Such Purchaser understands that the Debentures, and until such time as the Conversion Shares and the Interest Payment Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement or otherwise may be sold by such Purchaser pursuant to Rule 144(k), shall bear at issuance a restrictive legend in substantially the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and may not be sold or transferred in the absence of an effective registration statement under the Securities Act or an exemption from the registration requirements thereunder." The legend set forth above shall be removed and the Company shall issue a new certificate without such legend to the holder of any such Security upon which it is stamped if (i) the sale of such Security is registered under the Securities Act, (ii) such Security can be sold publicly pursuant to Rule 144(k) or (iii) such Security has been sold pursuant to Rule 144. 2.6 ISSUANCE OF GGD DEBENTURES; UPDATING OF REPRESENTATIONS. In the event that the GMO Debentures are exchanged in whole or in part for the GGD Debentures in accordance with the terms of the GMO Debentures, the representations made herein with respect to the Debentures, the Conversion Shares or the Interest Payment Shares, as the case may be, shall be deemed to be repeated as of such date with respect to the GGD Debentures. -3- 4 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes the following representations and warranties to each Purchaser (which shall be true as of the Closing and as of any such later date as contemplated hereunder) and agrees with each Purchaser that: 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted. Each of the Company and its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on the consolidated business or financial condition of the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries is not the subject of any pending or, to its knowledge, threatened investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, the Securities and Exchange Commission (the "COMMISSION") or any state securities commission or other governmental entity which could reasonably be expected to have a material adverse effect on the consolidated business or financial condition of the Company. The term "SUBSIDIARIES" means corporations in which the Company has an equity interest of greater than 50%. 3.2 AUTHORIZATION; CONSENTS. All corporate action on the part of the Company by its officers, directors and shareholders necessary for (A) the authorization, execution and delivery of, and the performance by the Company of its obligations under, (i) this Agreement, (ii) the Debentures, (iii) the Registration Rights Agreement and (iv) all other agreements, documents, certificates or other instruments delivered by the Company at the Closing (the instruments described in (i), (ii), (iii) and (iv) being collectively referred to herein as the "TRANSACTION DOCUMENTS"), and (B) the authorization, reservation for issuance, and issuance and delivery of the Conversion Shares upon conversion of the Debentures has been taken. The Transaction Documents constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) general principles of equity. Except as otherwise provided in the Transaction Documents, the Company has obtained all governmental or regulatory consents and approvals required for it to execute, deliver and perform its obligations under the Transaction Documents. 3.3 DISCLOSURE DOCUMENTS; MATERIAL AGREEMENTS; OTHER INFORMATION. The Company has filed with the Commission: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1996, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, (iii) all Current Reports on Form 8-K required to be filed with the Commission since December 31, 1996, (iv) the Company's definitive Proxy Statement for its 1997 Annual Meeting of Stockholders and (v) the Company's Prospectus and Joint Proxy Statement dated May 14, 1997 for its Special Meeting of Stockholders held on June 12, 1997 (collectively, the "DISCLOSURE DOCUMENTS"). The Company is not aware of any event that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after the Closing. Each -4- 5 Disclosure Document, as of the date of the filing thereof with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and/or the Securities Act, as applicable, and the rules and regulations thereunder, and, as of the date of such filing, such Disclosure Document did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements required to be filed as exhibits to the Disclosure Documents have been filed as required; neither the Company nor any of its subsidiaries is in breach of any such agreement where such breach is reasonably likely to have a material adverse effect on the business or financial condition of the Company. The information provided to the Purchaser as described in paragraph 2.3 above does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.4 CAPITALIZATION. The capitalization of the Company as of August 27, 1997 is as set forth on SCHEDULE 3.4 hereto, and there have been no material changes thereto between such date and the Closing Date. 3.5 VALID ISSUANCE. The Debentures, when issued, sold and delivered in accordance with the terms hereof, and the Conversion Shares and the Interest Payment Shares, when issued in accordance with the terms of the Debentures, will be duly and validly issued, fully paid and nonassessable, free and clear of any liens, claims, preemptive rights or encumbrances imposed by or through the Company and, based in part upon the representations of such Purchaser in this Agreement, will be issued in compliance with all applicable Federal and state securities laws. 3.6 NO CONFLICT WITH OTHER INSTRUMENTS. Neither the Company nor any of its subsidiaries is in violation or default of any provisions of its charter, bylaws or other organizational documents, as amended and in effect on and as of the date hereof, or of any material provision of any material instrument or contract to which it is a party or by which it is bound, or of any provision of any Federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which would have a material adverse affect on the Company's consolidated business or financial condition. The execution, delivery and performance of the Debentures, this Agreement and the other Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or of any of its subsidiaries. 3.7 FINANCIAL CONDITION; TAXES; LITIGATION. 3.7.1 The Company's financial condition is, in all material respects, as described in the Disclosure Documents, except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the Company. Except as -5- 6 otherwise described in the Disclosure Documents, there have been no material adverse changes to the Company's consolidated business or financial condition since June 30, 1997. 3.7.2 The financial statements contained in the Disclosure Documents have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the consolidated financial condition of the Company as of the dates of the balance sheets included therein and the consolidated results of its operations and cash flows for the period then ended (except as may be indicated therein). Without limiting the foregoing, there are no material liabilities, contingent or actual, that are required to be disclosed in the Disclosure Documents that are not so disclosed. 3.7.3 The Company has filed all tax returns required to be filed by it and paid all taxes which are due, except for taxes which it reasonably disputes or which could not reasonably be expected to have a material adverse effect on the consolidated business or financial condition of the Company. 3.7.4 Except as set forth in SCHEDULE 3.7.4, there is no material claim, litigation or administrative proceeding or inquiry pending, or, to the best of the Company's knowledge, threatened, against the Company or any of its subsidiaries, or against any officer, director or employee of the Company or any such subsidiary in connection with such person's employment therewith. Neither the Company nor any of its subsidiaries is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a material adverse effect on the consolidated business or financial condition of the Company. 3.8 REPORTING COMPANY; FORM S-3. The Company is subject to the reporting requirements of the Exchange Act, has a class of securities registered under Section 12 of the Exchange Act, and has filed all reports required thereby. Pursuant to General Instruction I.A. of Form S-3, the Company meets the eligibility requirements for registering securities on a registration statement on Form S-3 under the Securities Act. 3.9 INTELLECTUAL PROPERTY. The Company and its subsidiaries own, possess or can acquire on reasonable terms adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property rights necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any such rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the consolidated business or financial condition of the Company. 3.10 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described on SCHEDULE 3.10 hereto, (A) the Company has not granted or agreed to grant to any person or entity any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority and (B) no person or entity, including, but not -6- 7 limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement or any other Transaction Document which has not been waived. 3.11 TRADING ON NASDAQ. The GGD Stock is authorized for quotation on the Nasdaq National Market, and trading in the GGD Stock on Nasdaq has not been suspended. Shareholder approval for the issuance of the GMO Debentures is not required under NASD Rule 4460. 3.12 SOLICITATION. Neither the Company nor any of its subsidiaries or affiliates, nor any person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the GMO Debentures or (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the GMO Debentures under the Securities Act. 3.13 OTHER FEES. Except as set forth on SCHEDULE 3.13, the Company is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. 3.14 ISSUANCE OF GGD DEBENTURES; UPDATING OF REPRESENTATIONS. In the event that the GMO Debentures are exchanged in whole or in part for the GGD Debentures in accordance with the terms of the GMO Debentures, the representations made herein with respect to the Debentures, the Conversion Shares or the Interest Payment Shares, as the case may be, shall be deemed to be repeated as of such date with respect to the GGD Debentures. 4. COVENANTS OF THE COMPANY. 4.1 CORPORATE EXISTENCE. The Company shall, so long as any Purchaser or any affiliate of such Purchaser beneficially owns a Debenture or Debentures (or any interest therein), any Conversion Shares or Interest Payment Shares, maintain its corporate existence in good standing and shall pay all its taxes when due except for taxes which the Company reasonably disputes or which could not reasonably be expected to have a material adverse effect on the consolidated business or financial condition of the Company. 4.2 PROVISION OF INFORMATION. The Company shall provide each Purchaser with copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements, in each such case promptly after filing thereof with the Commission, until the conversion or redemption in full of the Debenture or Debentures held by such Purchaser. 4.3 FORM D; BLUE-SKY QUALIFICATION. The Company shall, on or before the Closing, take such action as is necessary to qualify the GMO Debentures for sale to the Purchasers under applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of any such action to such Purchaser. In the event that the GMO Debentures are exchanged in -7- 8 whole or in part for the GGD Debentures in accordance with the terms of the GMO Debentures, the Company shall, prior to such issuance, take such action as is necessary to qualify such exchange under applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of any such action to such Purchaser. 4.4 REPORTING STATUS. As long as such Purchaser or any affiliate of such Purchaser beneficially owns a Debenture or Debentures, or any interest therein, or any Conversion Shares or Interest Payment Shares, and until the date on which any of the foregoing may be sold to the public pursuant to Rule 144(k) (or any successor rule or regulation), (i) the Company shall timely file with the Commission all reports required to be so filed pursuant to the Exchange Act and (ii) the Company shall not terminate its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination. 4.5 USE OF PROCEEDS. The Company shall use the proceeds from the sale of the GMO Debentures for general corporate purposes and shall not use such proceeds to make a loan to or an investment in any other corporation, partnership or other entity. 4.6 LISTING. The Company shall, (i) as soon as practicable following the effectiveness of the GMO Registration Statement (as defined in the Registration Rights Agreement), secure the designation and quotation or listing of the GMO Stock on the Nasdaq National Market, the New York Stock Exchange or the American Stock Exchange and shall use its best efforts to maintain such designation, quotation or listing, and (ii) as soon as practicable following the issuance of the GGD Debentures, take such measures as may be necessary in order to secure the designation and quotation or listing of the shares of GGD Stock issuable thereby on the Nasdaq National Market, the New York Stock Exchange or the American Stock Exchange and shall use its best efforts to maintain such designation, quotation or listing of the GGD Stock. 4.7 RESERVATION OF COMMON STOCK. The Company shall at all times have authorized and reserved for issuance, free from any preemptive rights, solely for the purpose of effecting conversions of the Debentures hereunder, such number of shares of GMO Stock and/or GGD Stock, as the case may be, as shall from time to time be sufficient to effect the conversion of the aggregate principal amount of the Debentures then outstanding (the "RESERVED AMOUNT"). As of the Closing Date, the Reserved Amount shall be equal to 3,475,915 shares of GMO Stock. In the event that the holders of GMO Debentures are entitled to exchange GMO Debentures for GGD Debentures pursuant to the terms of the GMO Debentures, the Reserved Amount shall, on the GGD Issue Date (as defined in the GMO Debentures), be no less than (I) that number of shares of GGD Stock issuable upon conversion of (a)(i) the unpaid principal amount of the GMO Debentures eligible to be so exchanged, plus any accrued and unpaid interest thereon as of the GGD Issue Date, DIVIDED BY (ii) one hundred and thirteen percent (113%) of the average of the Closing Bid Prices (as defined in the GMO Debentures) of the GGD Stock on the five (5) Trading Days immediately prior to (but not including) the GGD Issue Date (the "GGD CONVERSION PRICE") PLUS (b)(i) the aggregate amount of interest payable on all of the GGD Debentures (assuming for this purpose that the aggregate principal amount of all of the GGD Debentures for which GMO Debentures are exchangeable on -8- 9 the GGD Issue Date are issued) through the date on which the GGD Debentures mature DIVIDED BY (ii) the GGD Conversion Price, and (II) that number of shares of GMO Stock issuable upon conversion of the aggregate unpaid principal amount of the GMO Debentures, if any, not exchanged or eligible to be so exchanged. If at any time there occurs a stock split, recapitalization or similar occurrence whereby the number of outstanding shares of GMO Stock or GGD Stock, as the case may be, is increased, the Company shall take immediate action (including, if necessary, seeking shareholder authorization) to increase the Reserved Amount accordingly. The Company shall not reduce the number of shares reserved for issuance hereunder without the written consent of the holders of at least 66% of the then outstanding aggregate principal balance of the Debentures. 4.8 USE OF PURCHASER NAME. Except as required by applicable law or regulation, the Company shall not use, directly or indirectly, any Purchaser's name in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of such Purchaser for the specific use contemplated. 4.9 COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company shall, prior to the Initial Conversion Date (as defined in the GMO Debentures), instruct its transfer agent (the "TRANSFER AGENT") (i) to convert the GMO Debentures into GMO Stock and, upon issuance of the GGD Debentures, to convert the GGD Debentures into GGD Stock, in either such case, upon receipt of a valid Conversion Notice (as defined in the Debentures) from a Purchaser, (ii) to issue certificates representing the number of shares of GMO Stock or GGD Stock, as the case may be, specified in such Conversion Notice, free of any restrictive legend if at such time the GMO Registration Statement or the GGD Registration Statement (each as defined in the Registration Rights Agreement), as the case may be, is effective and available for sales of such shares or such shares are eligible for sale pursuant to Rule 144(k) under the Securities Act, in the name of the Purchaser or its nominee and (iii) to deliver such certificates to the Purchaser no later than the close of business on the third (3rd) business day following the Conversion Date (as defined in the Debentures). The Company represents to and agrees with each Purchaser that it will not give any instruction to the Transfer Agent that will conflict with the foregoing instruction or otherwise restrict such Purchaser's right to convert the Debentures or receive Conversion Shares in accordance with the terms of the Debentures, the Registration Rights Agreement and this Agreement, respectively. In the event the Company's relationship with the Transfer Agent should be terminated for any reason, the Transfer Agent shall continue acting as transfer agent pursuant to the terms hereof until such time that a successor transfer agent is appointed by the Company and executes and agrees to be bound by the terms hereof. 5. CONDITIONS TO CLOSING. 5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT CLOSING. Each Purchaser's obligations at the Closing, including without limitation its obligation to purchase the GMO Debenture to be purchased by it hereunder, are conditioned upon the fulfillment of each of the following events: -9- 10 (a) the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on such date; (b) the Company shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by the Company on or before the Closing; (c) the Company shall have delivered to the Purchaser a certificate, signed by an officer of the Company, certifying that the conditions specified in paragraphs (a) and (b) above have been fulfilled; (d) the Company shall have delivered to the Purchaser an opinion of counsel for the Company, dated the Closing Date, in the form attached as EXHIBIT 5.1; (e) the Company shall have executed and delivered the Registration Rights Agreement; (f) there shall have been no material adverse changes in the Company's consolidated business or financial condition since June 30, 1997 which have not been disclosed in the Disclosure Documents; and (g) the Company shall have authorized and reserved for issuance upon conversion of the GMO Debentures the number of shares of GMO Stock specified in paragraph 4.7 above. 5.2 CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The Company's obligation at the Closing to issue and sell a GMO Debenture to a Purchaser hereunder is subject to the satisfaction, at or before the Closing Date, of each of such Purchaser's Closing Conditions (as defined below). The obligation of the Company to issue and sell a GMO Debenture to any Purchaser hereunder is distinct and separate from its obligation to issue and sell GMO Debentures to any other Purchaser hereunder and the failure by one or more Purchasers to fulfill the conditions set forth herein or to consummate the purchase of GMO Debentures hereunder will not relieve the Company of its obligations with respect to any other Purchaser. The "PURCHASER'S CLOSING CONDITIONS" are as follows: (a) the representations and warranties of the applicable Purchaser shall be true and correct in all material respects as of the Closing Date as if made on such date; (b) the applicable Purchaser shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by such Purchaser on or before the Closing; -10- 11 (c) the applicable Purchaser shall have delivered to the Company a Form W-8 or W-9, as applicable, duly executed by such Purchaser and confirming that such Purchaser is not subject to back-up withholding; and (d) such Purchaser shall have executed and delivered the Registration Rights Agreement. 6. INDEMNIFICATION. The Company agrees to indemnify and hold harmless each Purchaser and its officers, directors, employees and agents, and each person who controls the Purchaser within the meaning of the Securities Act or the Exchange Act (each, a "PURCHASER INDEMNIFIED PARTY") against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses (including the reasonable fees and disbursements of counsel) as incurred, joint or several, to which it, they or any of them, may become subject and not otherwise reimbursed, arising out of or in connection with the breach by the Company of any of its representations, warranties or covenants made herein. Each Purchaser agrees to indemnify and hold harmless the Company and its officers, directors, employees and agents, and each person who controls the Company within the meaning of the Securities Act or the Exchange Act (each, a "COMPANY INDEMNIFIED PARTY") (a Purchaser Indemnified Party and a Company Indemnified Party are each hereinafter referred to as an "INDEMNIFIED PARTY") against any losses, claims, damages, liabilities or expenses (including the fees and disbursements of counsel) as incurred, joint or several, to which it, they or any of them, may become subject and not otherwise reimbursed, arising out of or in connection with the breach by such Purchaser of any of its representations, warranties or covenants made herein. Promptly after receipt by an Indemnified Party of notice of the commencement of any action pursuant to which indemnification may be sought hereunder, such Indemnified Party will, if a claim in respect thereof is to be made against the other party (the "INDEMNIFYING PARTY"), deliver to the Indemnifying Party a written notice of the commencement thereof and the Indemnifying Party shall have the right to participate in and to assume the defense thereof with counsel reasonably selected by the Indemnifying Party that is reasonably acceptable to the Indemnified Party; PROVIDED, HOWEVER, that an Indemnified Party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of such counsel to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential conflicts of interest under applicable standards of professional conduct between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnifying Party within a reasonable time of the commencement of any such action will not relieve the Indemnifying Party of any of its obligations hereunder with respect to such action except to the extent such failure is prejudicial to the Indemnifying Party's ability to defend any such action. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of pending or threatened action in respect of which an Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified -11- 12 Party unless such settlement includes an unconditional release of such Indemnified Party from all liability on any claims that are the subject matter of such action. An Indemnifying Party will not be liable for any settlement of any action or claim effected without its written consent. 7. MISCELLANEOUS. 7.1 SURVIVAL; SEVERABILITY. The representations, warranties, covenants and indemnities made by the parties herein shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties. 7.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Each Purchaser may assign its rights hereunder, in connection with any private sale or transfer of a Debenture, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term "Purchaser" shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. 7.3 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The obligations of each Purchaser hereunder are several and not joint with the obligations of the other Purchasers hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at the Closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 7.4 NO RELIANCE. Each party acknowledges that (i) it has such knowledge in business and financial matters as to be fully capable of evaluating this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, (ii) it is not relying on any advice or representation of any other party (other than those contained or described in this Agreement or the other Transaction Documents) in connection with entering into this Agreement, the other Transaction Documents or such transactions, (iii) it has not received from any such party -12- 13 any assurance or guarantee as to the merits (whether legal, regulatory, tax, financial or otherwise) of entering into this Agreement or the other Transaction Documents or the performance of its obligations hereunder and thereunder, and (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and has entered into this Agreement and the other Transaction Documents based on its own independent judgment and on the advice of its advisors as it has deemed necessary, and not on any view (whether written or oral) expressed by any such party. 7.5 INJUNCTIVE RELIEF. The Company acknowledges that a breach by it of its obligations hereunder may cause irreparable harm to each Purchaser and that the remedy or remedies at law for any such breach may be inadequate and agrees, in the event of any such breach, in addition to all other available remedies, such Purchaser shall have the right to obtain equitable relief to enforce this Agreement. 7.6 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of New York without regard to the conflict of laws provisions thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 7.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 7.8 HEADINGS. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.9 NOTICES. Any notice, demand or request required or permitted to be given by the Company or a Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with a hard copy to follow) on or before 5:00 p.m., eastern time, on a business day or, if such day is not a business day, on the next succeeding business day, (ii) on the next business day after timely delivery to a nationally recognized overnight courier and (iii) on the third business day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows: -13- 14 If to the Company: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attn: Chief Legal Officer Tel: 617-252-7500 Fax: 617-252-7553 and if to any Purchaser, to such address and facsimile number for such Purchaser as shall appear on the signature page hereof executed by such Purchaser, or as shall be designated by such Purchaser in writing to the Company. 7.10 EXPENSES. Except as otherwise provided herein, each of the Company and the Purchasers shall pay all costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement. 7.11 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Debentures and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and each Purchaser, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. -14- 15 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: /s/ David J. McLachlan ------------------------------------------ Name: David J. McLachlan Title: Executive Vice President Finance and Chief Financial Officer PURCHASER NAME: ______________________________ By: __________________________________________ Name: Title: ADDRESS: _____________________________________ _____________________________________ Tel: ________________________________ Fax: ________________________________ WITH COPIES OF NOTICES SENT TO: _____________________________________ _____________________________________ Tel: ________________________________ Fax: ________________________________ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $______________ | | Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. -15- 16 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Swiss Bank Corporation, London Branch ------------------------------------- By: /s/ Kipp K. Schrage By: /s/ George W. Locasto ------------------------------ ------------------------------------ Name: Kipp K. Schrage Name: George W. Locasto Title: Executive Director Title: Executive Director, Convertibles Convertibles Swiss Bank Corp (London Branch) Attorney-in-Fact ADDRESS: Swiss Bank House ---------------- One High Timber Street ---------------------- London EC4V35B -------------- Attn: Lee Lewis --------------- Tel: 011-44171-567-4899 ------------------ Fax: 011-44171-567-4744 ------------------ WITH COPIES OF NOTICES SENT TO: SBC Warburg Dillon Read Inc. ---------------------------- 141 West Jackson Boulevard -------------------------- Chicago, Illinois 60604 ----------------------- Attn: Executive Director - Convertibles --------------------------------------- Tel: 312-554-5560 ------------ Fax: 312-554-5033 ------------ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $1,750,000 ---------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 17 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: ___________________________ Name: Title: PURCHASER NAME: Tribeca Investments, L.L.C. --------------------------- By: /s/ William H. Heyman ------------------------------ Name: William H. Heyman Title: CEO ADDRESS: 388 Greenwich Street -------------------- NY, NY 10013 ------------ Tel: 212-816-8905 ------------ Fax: 212-816-5579 ------------ WITH COPIES OF NOTICES SENT TO: Allan Teh --------- Managing Director ----------------- Tel: 212-816-2344 ------------ Fax: 212-816-5555 ------------ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $1,000,000 ---------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 18 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Stark International ------------------- By: /s/ Michael A. Roth ------------------------------ Name: Michael A. Roth Title: Managing Member ADDRESS: Century House ------------- 31 Richmond Rd. --------------- Hamilton HM-08 Bermuda ---------------------- Tel: 414-241-1810 ------------ Fax: 414-241-1888 ------------ WITH COPIES OF NOTICES SENT TO: Staro Asset Management ---------------------- 1500 W. Market Street, Ste. 200 ------------------------------- Mequon, WI 53092 ---------------- Tel: 414-241-1810 ------------ Fax: 414-241-1888 ------------ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $750,000.00 ----------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 19 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: SoundShore Partners L.P. ------------------------ By: /s/ Thomas Leishman *By: AIG International Asset Management Ltd ------------------------------ as General Partner of Name: Thomas J. Leishman SoundShore Partners L.P. Title: Vice-President* ADDRESS: 29 Richmond Road ---------------- Pembroke HM 08, Bermuda ----------------------- Tel: 441-295-2121 ------------ Fax: 441-295-8891 ------------ WITH COPIES OF NOTICES SENT TO: Mr. Howard Fischer ------------------ Basso Securities Ltd -------------------- 1281 East Main Street, 4th Floor -------------------------------- Stamford, Connecticut 06902, U.S.A. ----------------------------------- Tel: 203-324-8400 ------------ Fax: 203-324-8496 / 203-861-3317 --------------------------- PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $1,000,000.00 ------------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 20 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Shepard Investments International, Ltd. --------------------------------------- By: /s/ Michael A. Roth -------------------------------------------- Name: Michael A. Roth Title: General Member of Investment Manager Staro Asset Management ADDRESS: International Fund Administration --------------------------------- 48 Par-La-Ville Road, Ste. 464 ------------------------------ Hamilton HM-11 Bermuda ---------------------- Tel: 441-295-4718 ------------ Fax: 441-295-9637 ------------ WITH COPIES OF NOTICES SENT TO: Staro Asset Management, LLC --------------------------- 1500 West Market Street, Ste. 200 --------------------------------- Mequon, WI 53092 ---------------- Tel: 414-241-1810 ------------ Fax: 414-241-1888 ------------ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $750,000.00 ----------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 21 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Proprietary Convertible Investment Group Inc. By: /s/ Allan Weine -------------------------- Name: Allan Weine Title: Vice-President ADDRESS: c/o Credit Suisse First Boston Corp. ------------------------------------ 11 Madison Avenue, 3rd Floor ---------------------------- New York, NY 10010 ------------------ Tel: 212-325-2302 ------------ Fax: 212-325-6519 ------------ WITH COPIES OF NOTICES SENT TO: ________________________________ ________________________________ Tel: ___________________________ Fax: ___________________________ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $10,000,000 ----------- [X] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. Accredited Investor 22 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Oracle Partners, L.P. --------------------- By: /s/ Larry N. Feinberg -------------------------- Name: Larry N. Feinberg Title: General Partner ADDRESS: 712 Fifth Avenue, 45th Floor ---------------------------- New York, NY 10019 ------------------- Attn: Norman Schleifer, CFO --------------------------- Tel: 212-373-9200 ------------ Fax: 212-459-0863 ------------ WITH COPIES OF NOTICES SENT TO: ________________________________ ________________________________ Tel: ___________________________ Fax: ___________________________ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $2,000,000 ---------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 23 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Och-Ziff Capital Management, L.P. --------------------------------- By: /s/ Daniel S. Och ----------------------------------------------------- Name: Daniel S. Och Title: Managing Member of Och-Ziff Associates, L.L.C. General Partner of Och-Ziff ADDRESS: Och-Ziff Capital Management, L.P. --------------------------------- 153 East 53rd Street, 44th Floor -------------------------------- New York, NY 10022 ------------------ Tel: 212-292-5956 ------------ Fax: 212-292-5950 ------------ WITH COPIES OF NOTICES SENT TO: ________________________________ ________________________________ Tel: ___________________________ Fax: ___________________________ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $1,750,000 ---------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. 24 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: __________________________ Name: Title: PURCHASER NAME: Employers Reinsurance Corporation --------------------------------- By: /s/ Ross S. Margolies ------------------------------ Name: Ross S. Margolies Title: Director ADDRESS: Acting as Investment Advisor ---------------------------- Salomon Brothers Asset Management Inc. -------------------------------------- 7 World Trade Center, 38th Floor -------------------------------- New York, NY 10048 ------------------ Tel: 212-783-0845 ------------ Fax: 212-783-1067 ------------ WITH COPIES OF NOTICES SENT TO: ________________________________ ________________________________ Tel: ___________________________ Fax: ___________________________ PRINCIPAL AMOUNT OF THE GMO DEBENTURE TO BE PURCHASED: $1,000,000 ---------- [ ] Check here if Purchaser is NOT a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended. EX-10.6 7 GMO CONVERTIBLE DEBENTURE 1 EXHIBIT 10.6 THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE, TRANSFER OR DISPOSITION. THIS DEBENTURE (THIS "DEBENTURE") AND THE OTHER GENZYME MOLECULAR ONCOLOGY DIVISION ("GMO") CONVERTIBLE DEBENTURES OF EVEN DATE HEREWITH (TOGETHER WITH THIS DEBENTURE, THE "DEBENTURES") ARE ISSUED SUBJECT TO THE TERMS OF (A) A PURCHASE AGREEMENT, DATED AS OF AUGUST 29, 1997 ("PURCHASE AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND THE PURCHASERS NAMED THEREIN AND (B) A REGISTRATION RIGHTS AGREEMENT, DATED AUGUST 29, 1997 ("REGISTRATION RIGHTS AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND SUCH PURCHASERS. THIS DEBENTURE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT". THE TOTAL AMOUNT OF ORIGINAL ISSUE DISCOUNT IS DEPENDENT ON WHETHER THE INTEREST IS PAID IN CASH OR STOCK. FOR ADDITIONAL INFORMATION, CONTACT THE TREASURER OF GENZYME CORPORATION AT 617-252-7500. GENZYME CORPORATION GMO CONVERTIBLE DEBENTURE New York, New York $[ ],000,000 August 29, 1997 FOR VALUE RECEIVED, Genzyme Corporation, a Massachusetts corporation (the "COMPANY"), hereby promises to pay to the order of [ ] or its assignees (the "HOLDER") the sum of [ ] MILLION DOLLARS ($[ ],000,000) in same day funds, on or before August 28, 2002 (the "MATURITY DATE"), and to pay interest thereon from the date hereof (the "ISSUE DATE") as provided herein. The following terms shall apply to this Debenture: 1. CONVERSION. (a) RIGHT TO CONVERT. Subject to the limitation contained in subparagraph (h) below, the holder of this Debenture (the "HOLDER") shall have the right to convert all or any part of the outstanding unpaid principal of this Debenture at any time and from time to time on or after the Initial Conversion Date (as defined below) into fully paid and non-assessable shares, free and clear of any liens, claims, preemptive rights or encumbrances imposed by or through the Company (the 2 "CONVERSION SHARES"), of Genzyme Molecular Oncology Division Common Stock, $.01 par value (the "GMO STOCK"), in accordance with the terms hereof (a "CONVERSION"). As used herein, the "INITIAL CONVERSION DATE" shall mean the ninety-first (91st) day following the first day of an initial public offering by the Company of shares of GMO Stock (the "IPO") pursuant to a registration statement (the "REGISTRATION STATEMENT") which has become effective under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or such later date (not to exceed ninety (90) days from such ninety-first day) as may be determined in good faith by the managing underwriter for the IPO to be necessary for the orderly completion of the IPO. The "FIRST DAY OF THE IPO" shall be deemed to occur on the effective date of the Registration Statement and is referred to herein as the "IPO DATE". (b) CONVERSION NOTICE. In order to convert principal of this Debenture, or any portion thereof, the Holder shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern time, on the date on which the Holder wishes to effect such Conversion (the "CONVERSION DATE"), a notice of conversion to the Company and to its designated transfer agent for the GMO Stock (the "TRANSFER AGENT") stating the principal amount to be converted, the amount of interest accrued on the then unpaid principal balance of this Debenture as provided herein up to and including the Conversion Date, the applicable Conversion Price and a calculation of the number of shares of GMO Stock issuable upon such Conversion (a "CONVERSION NOTICE"). The Holder shall not be required to physically surrender this Debenture to the Company in order to effect a Conversion. The Company shall maintain a record showing, at any given time, the unpaid principal amount of this Debenture and the date of each Conversion or other payment of principal hereof. The Holder shall amend Annex I hereto upon any such Conversion or payment of principal to reflect the unpaid principal amount hereof. In the case of a dispute as to the calculation of the Conversion Price or the number of Conversion Shares issuable upon a Conversion, the Company shall promptly issue to the Holder the number of Conversion Shares that are not disputed and shall submit the disputed calculations to its independent accountants within one (1) business day of receipt of the Holder's Conversion Notice. The Company shall cause such accountant to calculate the Conversion Price as provided herein and to notify the Company and the Holder of the results in writing no later than two (2) business days following the day on which it received the disputed calculations. Such accountant's calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the Company. (c) NUMBER OF CONVERSION SHARES; CONVERSION PRICE. The number of Conversion Shares to be delivered by the Company pursuant to a Conversion shall be equal to the principal amount of this Debenture specified in the Conversion Notice DIVIDED BY the Conversion Price (as defined below) in effect on the Conversion Date. "CONVERSION PRICE" shall mean: (A) with respect to a Conversion occurring on a Conversion Date during the period beginning on the Initial Conversion Date and ending on the 450th day following the Issue Date (the "INITIAL CONVERSION PERIOD"), the price determined by multiplying (x) the Applicable Percentage (as defined below) TIMES (y) the average of the Closing Bid Prices (as defined below) for the GMO Stock on the twenty (20) Trading Days (as defined below) occurring -2- 3 immediately prior to (but not including) the Conversion Date (the "FLOATING CONVERSION PRICE"); (B) with respect to a Conversion occurring on a Conversion Date which is on or after the first business day following the end of the Initial Conversion Period, the lesser of (i) the Floating Conversion Price and (ii) (x) the average of the Closing Bid Prices for the GMO Stock on the twenty (20) Trading Days occurring immediately prior to (but not including) the last day of the Initial Conversion Period TIMES (y) eighty-five percent (85%)(the "FIXED CONVERSION PRICE"); PROVIDED, HOWEVER, that if the Fixed Conversion Price as so determined is less than $7.70 (the "FLOOR CONVERSION PRICE"), the Fixed Conversion Price shall be deemed to be equal to the Floor Conversion Price; (C) with respect to a Conversion occurring on the Maturity Date (as defined below), the average of the Closing Bid Prices for the GMO Stock on the twenty (20) Trading Days occurring immediately prior to (but not including) the Maturity Date; and (D) with respect to a Conversion occurring on an Optional Redemption Date (as defined below), the average of the Closing Bid Prices for the GMO Stock on the twenty (20) Trading Days occurring immediately prior to (but not including) such Optional Redemption Date. Conversions may be effected in minimum principal amounts of $100,000 (or such smaller amount of principal as may remain unpaid at the time of such Conversion). Notwithstanding the foregoing, in no event may the Holder convert any principal of this Debenture if the Conversion Price, calculated as provided herein, is less than the Floor Conversion Price; in such event the Holder will have the remedies provided in Section 8 hereof. (d) APPLICABLE PERCENTAGE. The "APPLICABLE PERCENTAGE" shall be determined in accordance with the following schedule, where "X" represents the Conversion Date:
Number of Days After Issue Date Applicable Percentage ---------------- --------------------- 0 < X <= 180 100% 180 < X <= 210 93% 210 < X <= 240 92% 240 < X <= 270 91% 270 < X <= 300 90% 300 < X <= 330 89% 330 < X <= 360 88% 360 < X <= 390 87% 390 < X <= 420 86% 420 < X 85%
-3- 4 (e) DELIVERY OF GMO STOCK UPON CONVERSION. Upon receipt of a Conversion Notice pursuant to paragraph 1(b) above, the Company shall, no later than the close of business on the third (3rd) business day following the Conversion Date set forth in such Conversion Notice (the "DELIVERY DATE"), issue and deliver or caused to be delivered to the Holder the number of Conversion Shares as shall be determined as provided herein. If any Conversion would create a fractional Conversion Share, such fractional Conversion Share shall be disregarded and the number of Conversion Shares issuable upon such Conversion, in the aggregate, shall be the next higher number of Conversion Shares. Certificates representing Conversion Shares shall not contain any restrictive legend as long as the sale of such Conversion Shares is covered by an effective Registration Statement (as defined in the Registration Rights Agreement) or may be made pursuant to Rule 144(k) under the Securities Act or any successor rule or provision. (f) FAILURE TO DELIVER CONVERSION SHARES. In the event that the Company fails to deliver to the Holder the number of Conversion Shares specified in the applicable Conversion Notice on or before the Delivery Date therefor for any reason (a "CONVERSION DEFAULT"), and such Conversion Default continues for longer than seven (7) business days, the Company shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") in the amount of (i) (N/365) MULTIPLIED BY (ii) the unpaid principal amount of this Debenture represented by the Conversion Shares which remain the subject of such Conversion Default MULTIPLIED BY (iii) the lower of twenty-four percent (24%) and the maximum rate permitted by applicable law, where "N" equals the number of days elapsed between the original Delivery Date of such Conversion Shares and the earlier to occur of (A) the date on which all of such Conversion Shares are issued and delivered to the Holder and (B) the date on which the principal amount represented thereby is redeemed pursuant to the terms of this Debenture. Cash amounts payable hereunder shall be paid on or before the fifth (5th) business day of the calendar month following the calendar month in which such amount has accrued. Nothing herein shall limit the Holder's right to pursue remedies with respect to its actual damages resulting from a Conversion Default (including, without limitation, damages relating to any purchase of shares of GMO Stock by the Holder to make delivery on a sale effected in anticipation of receiving Conversion Shares upon Conversion), and the Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). (g) PAYMENT OF PRINCIPAL AT MATURITY; OPTIONAL CONVERSION. On the Maturity Date, the Company shall pay to the Holder the amount of the unpaid principal amount of this Debenture in same day funds; PROVIDED, HOWEVER, that if (i) the Holder agrees to receive such payment in shares of GMO Stock and (ii) the Company has satisfied each of the Optional Conversion Conditions (as defined below), such unpaid principal amount may be converted into the number of shares of GMO Stock equal to the amount of such unpaid principal amount DIVIDED BY the Conversion Price in effect on the Maturity Date (an "OPTIONAL CONVERSION"), and the Maturity Date shall be deemed the Conversion Date with respect to such Optional Conversion. If an Optional Conversion occurs, the Company and the Holder shall follow the procedures for Conversion set forth in this Section 1; PROVIDED, HOWEVER, that the Holder shall not be required to send the Conversion Notice contemplated by paragraph 1(b) above. The "OPTIONAL CONVERSION CONDITIONS" are as follows: -4- 5 (i) the GMO Common Stock is designated for quotation on the Nasdaq National Market system or listed on the New York Stock Exchange ("NYSE") or the American Stock Exchange ("ASE"); (ii) the market value of the outstanding shares of GMO Stock on the Maturity Date (not including any such shares represented by the outstanding principal balance of this Debenture) shall be greater than eighty million ($80,000,000); and (iii) the GMO Stock shall have an average daily trading volume of at least eight hundred thousand dollars ($800,000) for the period of one hundred and eighty (180) days immediately prior to the fifteenth (15th) day of the calendar month occurring immediately prior to the calendar month in which the Maturity Date occurs (based on the weighted average of the Closing Bid Prices of the GMO Stock during such period). (h) LIMITATION ON RIGHT TO CONVERT. In no event shall the Holder be permitted to convert principal of this Debenture in excess of that amount of principal upon the Conversion of which (x) the number of shares of GMO Stock beneficially owned by the Holder (other than shares of GMO Stock which may be deemed beneficially owned except for being subject to a limitation on conversion or exercise analogous to the limitation contained in this paragraph (h)) PLUS (y) the number of shares of GMO Stock issuable upon the Conversion of such principal amount is equal to or exceeds (z) 4.99% of the number of shares of GMO Stock then issued and outstanding. The determination of whether the limitation contained in this paragraph (h) applies and whether principal of this Debenture is convertible (in relation to other securities owned by the Holder) shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be such Holder's determination that such limitation does not apply and that the principal amount of this Debenture to which such Conversion Notice relates is convertible. This paragraph may be amended (A) in order to clarify an ambiguity or otherwise to give effect to the limitation contained in this paragraph (h), by the Board of Directors of the Company and the written consent of the Holders of 66% of the aggregate unpaid principal amount of the Debentures then outstanding and (B) for any other reason, with the further consent of the holders of a majority of the shares of the Company's common stock then outstanding. In the event that the limitation contained in this paragraph (h) applies to all or a portion of the unpaid principal amount of this Debenture, nothing contained herein shall be deemed to restrict the right of the Holder to convert such principal amount at such time as such Conversion will not violate such limitation. (i) CERTAIN DEFINITIONS. "TRADING DAY" shall mean any day on which the GMO Stock is traded for any period on the Nasdaq National Market or on the principal securities exchange or market on which the GMO Stock is then traded. "CLOSING BID PRICE" means, with respect to a security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported (i) if the Nasdaq National Market is the principal market on which the GMO Stock is then traded, by Nasdaq and (ii) if the Nasdaq National Market is not such principal market, by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting closing bid prices of such security, a comparable reporting service of national reputation selected by the Company and reasonably acceptable to holders of a majority of the unpaid principal amount of the Debentures then outstanding (collectively, "BLOOMBERG"), or -5- 6 if the foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Holders (which may be a holder) of at least 50% of the aggregate unpaid principal amount of the Debentures then outstanding, with the reasonable costs of such appraisal to be borne by the Company. 2. ADJUSTMENTS TO CONVERSION PRICE. (a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK DIVIDEND, ETC. If, after the Initial Conversion Period and prior to the Conversion of the entire principal amount of this Debenture, (A) the number of outstanding shares of GMO Stock is increased by a stock split, stock dividend, reclassification, the distribution to holders of GMO Stock of rights or warrants entitling them to subscribe for or purchase GMO Stock at less than the current market price thereof as of the date such right or warrant first becomes exercisable (other than pursuant to the Company's equity incentive plan, 401(k) plan, stock option plans, employee stock purchase plan or any warrants outstanding as of the Issue Date), or other similar event, each of the Fixed Conversion Price and the Floor Conversion Price shall be proportionately reduced, or (B) the number of outstanding shares of GMO Stock is decreased by a reverse stock split, combination or reclassification of shares or other similar event, each of the Fixed Conversion Price and the Floor Conversion Price shall be proportionately increased. In such event, the Company shall notify the Transfer Agent of such change on or before the effective date thereof. For purposes of this paragraph 2(a), the "CURRENT MARKET PRICE" per share of GMO Stock on any date shall be the average of the Closing Bid Prices for the GMO Stock on the five (5) consecutive Trading Days occurring immediately prior to (but not including) such date. Nothing contained herein shall be construed to require the adjustment of the Fixed Conversion Price or the Floor Conversion Price in the event that the Company issues additional series or classes of its common stock as long as any such issuance does not result in dilution of the shares of GMO Stock then outstanding. (b) ADJUSTMENT TO CONVERSION PRICE. If, prior to the Conversion of the entire principal amount of this Debenture, the number of outstanding shares of GMO Stock is increased or decreased by a stock split, stock dividend, combination, reclassification or other similar event, which event shall have taken place during the reference period for determination of the Conversion Price for any Conversion of the principal balance of this Debenture, the Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event for all Trading Days immediately preceding the Conversion Date. (c) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, prior to the Conversion of the entire principal amount of this Debenture, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of GMO Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity or there is a sale -6- 7 of all or substantially all the Company's assets or there is a change of control transaction with respect to which, in any such case, the Holder does not exercise its right to a Mandatory Redemption (as defined below) of the outstanding principal hereof, then the Holder shall thereafter have the right to receive upon Conversion of the principal amount of this Debenture, upon the terms and conditions specified herein and in lieu of the shares of GMO Stock immediately theretofore issuable upon conversion, such stock, securities and/or other assets, if any, which the Holder would have been entitled to receive in such transaction had such principal amount been converted immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Conversion Price (including the Floor Conversion Price) and of the number of shares issuable upon a Conversion) shall thereafter be applicable as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise hereof. The Company shall not effect any transaction described in this paragraph 2(c) unless (i) it first gives to the Holder prior notice of such merger, consolidation, exchange of shares, recapitalization, reorganization, redemption or other similar event, and makes a public announcement of such event at the same time that it gives such notice and (ii) the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligations of the Company under this Debenture, including the terms of this paragraph 2(c). (d) DISTRIBUTION OF ASSETS. If, prior to the Conversion of the entire principal amount of this Debenture, the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of GMO Stock as a partial liquidating dividend, by way of return of capital or otherwise, including any dividend or distribution in cash or shares of capital stock of a subsidiary of the Company (collectively, a "DISTRIBUTION"), then, upon a Conversion by the Holder occurring after the record date for determining shareholders entitled to such Distribution but prior to the effective date of such Distribution, the Holder shall be entitled to receive the amount of such assets which would have been payable to the Holder had the Holder been the holder of such shares of GMO Stock on the record date for the determination of shareholders entitled to such Distribution. The Fixed Conversion Price for amounts of principal of this Debenture not converted prior to the effective date of a Distribution shall be reduced to a price determined by decreasing the Fixed Conversion Price in effect immediately prior to the record date of the Distribution by an amount equal to the fair market value of the assets so distributed, as determined by mutual agreement of the Company and the Holder. (e) NO FRACTIONAL SHARES. If any adjustment under this Section 2 would create a fractional share of GMO Stock or a right to acquire a fractional share of GMO Stock, such fractional share shall be disregarded and the number of shares of GMO Stock issuable upon Conversion shall be the next higher number of shares. 3. OPTIONAL EXCHANGE. (a) RIGHT OF EXCHANGE. In the event of an Optional Exchange Trigger Event (as defined below), the Holder shall have the right (but not the obligation), upon prior written notice (an "Optional Exchange Notice") delivered to the Company during the thirty (30) business day period following the Optional Exchange Trigger Date (as defined below), to exchange this Debenture for -7- 8 a Genzyme General Division ("GGD") Convertible Debenture in the form attached to the Purchase Agreement as Exhibit B (the "GGD DEBENTURE"). Such notice shall state the date of such exchange (the "OPTIONAL EXCHANGE DATE"), which date shall be on or before the last day of such thirty business-day period, and the principal amount of this Debenture being exchanged, determined as described in paragraph 3(c) below; PROVIDED, HOWEVER, that the issue date for the GGD Debenture (the "GGD ISSUE DATE") shall be the Optional Exchange Trigger Date (as defined below), regardless of the Optional Exchange Date for such GGD Debenture; and PROVIDED FURTHER that in the event of a Reduced Offering (as defined below) that is completed prior to the Optional Exchange Trigger Date, the Company and the Holder shall reasonably agree to a GGD Issue Date that is prior to the Optional Exchange Trigger Date (which GGD Issue Date shall in no event be later than thirty (30) business days after the date on which the Holder receives written notice from the Company that such Reduced Offering has been completed) in which case the Holder shall deliver an Optional Exchange Notice at any time prior to such GGD Issue Date. In the event of an exchange of this Debenture as a result of an Incomplete Offering (as defined below), the Holder shall return this Debenture to the Company for cancellation on or before the Optional Exchange Date against delivery of a GGD Debenture in a principal amount equal to the unpaid principal amount of this Debenture. In the event of an exchange of this Debenture as a result of a Reduced Offering (as defined below), the Holder shall amend Annex I hereto to reflect such exchange. (b) OPTIONAL EXCHANGE TRIGGER EVENT. An "OPTIONAL EXCHANGE TRIGGER EVENT" shall mean either (i) where the Company fails, on or before the Optional Exchange Trigger Date (as defined below), to complete the IPO (an "INCOMPLETE OFFERING") or (ii) where the Company has completed the IPO on or before the Optional Exchange Trigger Date but where (x) the aggregate proceeds to the Company from the IPO (inclusive of any GMO shares sold pursuant to an overallotment option granted to the underwriters) are less then fifteen million dollars ($15,000,000) or (y) immediately following the completion of the IPO (including the sale of overallotment shares to the extent that an overallotment option is exercised), the total equity market capitalization for Genzyme Molecular Oncology Division is less than ninety million dollars ($90,000,000) (computed based on the gross price per share offered in the IPO)(a "REDUCED OFFERING"). As used herein, "OPTIONAL EXCHANGE TRIGGER DATE" shall mean the first anniversary of the Issue Date. (c) PRINCIPAL AMOUNT OF GGD DEBENTURE. In the event of (A) an Incomplete Offering, the GGD Debenture to be exchanged for this Debenture shall be issued in an amount equal to one hundred percent (100%) of the unpaid principal amount of this Debenture as of the GGD Issue Date and (B) a Reduced Offering, the GGD Debenture to be exchanged for this Debenture shall be issued in a principal amount equal to fifty percent (50%) of such unpaid principal amount as of the GGD Issue Date and this Debenture shall remain outstanding with respect to the balance of such principal amount (in either such event, an "OPTIONAL EXCHANGE"). In the event of an Optional Exchange, interest accrued on this Debenture and remaining unpaid up to and including the GGD Issue Date may be paid in cash or, at the option of the Company and in lieu of cash, by increasing the principal amount of the GGD Debenture to be exchanged for this Debenture by the amount of such accrued interest. 4. INTEREST. -8- 9 (a) INTEREST RATE; STOCK PAYMENT OPTION. This Debenture shall bear interest on the unpaid principal amount hereof at an annual rate of six percent (6%) from the Issue Date, computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed. Interest accrued hereunder shall be due and payable on each Conversion Date, on a Redemption Date (as defined herein), on the GGD Issue Date and on the Maturity Date, but, in the case of interest which is due on a Conversion Date and payable in cash, such interest may be paid on the following business day in the event that a Conversion Notice (as defined herein) is delivered to the Company after 2 p.m., eastern time, on the Conversion Date. Interest accrued hereunder shall not be subject to a "gross-up" in the event that backup withholding is required by applicable law. Interest due on a Conversion Date or an Optional Redemption Date may be paid either in cash or, at the option of the Company (the "STOCK PAYMENT OPTION"), and upon satisfaction of the conditions set forth in paragraph 4(b) below, in shares of GMO Stock or in shares of capital stock into which such GMO Stock may be changed or reclassified. The shares of GMO Stock to be issued and delivered by the Company pursuant to the Stock Payment Option shall be fully paid and non-assessable, free and clear of any liens, claims, preemptive rights or encumbrances imposed by or through the Company, in an amount calculated in accordance with paragraph 4(c) below (the "INTEREST PAYMENT SHARES"). Any amount of interest payable on this Debenture in cash which is not paid within three (3) business days of the date when the same becomes due and payable hereunder (the "PAYABLE DATE") shall bear interest at an annual rate equal to the lower of (x) the "prime" rate (as published in the Wall Street Journal) on the Payable Date PLUS three percent (3%) and (y) the highest rate permitted by applicable law, for the number of days elapsed from such third (3rd) business day until such amount is paid in full ("DEFAULT INTEREST"). The Company may not make payments of Default Interest in shares of GMO Stock. (b) CONDITIONS TO STOCK PAYMENT OPTION. If the Company wishes to exercise the Stock Payment Option, it may do so only if each of the following conditions has been satisfied as of the relevant Conversion Date: (i) the number of shares of GMO Stock authorized, unissued and unreserved for all other purposes, or held in the Company's treasury, is sufficient to pay the aggregate number of (x) Conversion Shares issuable on such Conversion Date assuming the conversion in full of the Debentures at the Conversion Price then in effect and (y) the number of Interest Payment Shares issuable pursuant to such option; (ii) the Interest Payment Shares are authorized for quotation on the Nasdaq National Market or for listing or quotation on any other national securities exchange or market on which the GMO Stock may be listed; (iii) the Registration Statement (as defined in the Registration Rights Agreement) is effective and available for the sale of the Interest Payment Shares by the Holder; (iv) a Mandatory Redemption Event (as defined herein) shall not have occurred and be continuing; -9- 10 (v) the Company has delivered to the Holder a certificate, signed by an executive officer of the Company, setting forth: o the amount of the interest payment to which the Holder is entitled and, if not the same, the amount of such payment to be made in Interest Payment Shares; o the number of Interest Payment Shares to be delivered in payment of such interest, and the calculation therefor; and o a statement to the effect that all of the conditions set forth in paragraphs 4(b)(i) - (iv) have been satisfied; and (vi) the Holder shall have consented in writing to the Company's use of the Stock Payment Option on such Conversion Date. (c) DELIVERY OF INTEREST PAYMENT SHARES. If the Company elects to exercise the Stock Payment Option, the Company shall deliver to such Holder, on or before the third (3rd) business day following the applicable Conversion Date (the "INTEREST PAYMENT SHARE DELIVERY DATE"), one or more certificates representing the aggregate number of whole Interest Payment Shares that is determined by dividing (x) the amount of interest which would otherwise be payable in cash to such Holder on the applicable Conversion Date by (y) the Conversion Price (as defined herein) then in effect. No fractional Interest Payment Shares shall be issued; the Company shall, in lieu thereof, either issue a number of Interest Payment Shares which reflects a rounding up to the next whole number of shares or pay such amount in cash. (d) FAILURE TO DELIVER INTEREST PAYMENTS SHARES. If the Company fails to issue and deliver the appropriate number of Interest Payment Shares to such Holder on or before the tenth (10th) business day following the Interest Payment Share Delivery Date, the Company shall not be entitled to utilize the Stock Payment Option in respect of such interest payment, but instead must immediately pay such interest payment in cash, together with Default Interest on such unpaid amount calculated from the applicable Payable Date until the date on which such amount is paid. (e) NOTICE OF EXERCISE. Not later than five (5) business days immediately prior to the first day of each calendar month during which any principal of this Debenture remains unpaid and outstanding, the Company shall notify the Holder in writing whether the Company intends, assuming satisfaction of the conditions set forth in subparagraph (b) above, to pay interest in Interest Payment Shares in lieu of cash on any Conversion Date occurring during that month or during such longer period as the Company may specify. -10- 11 5. PRIORITY; SUBORDINATION. (a) NO PAYMENT IF DEFAULT ON SENIOR INDEBTEDNESS. No payment of principal of, premium, if any, or interest on this Debenture or on account of any purchase or redemption or other acquisition of the Debenture, whether at maturity or otherwise, shall be made upon, or accepted with respect to, this Debenture, and the Holder shall not initiate any action to accelerate the maturity of the Debenture or exercise any remedy to seek collection if at the time of such payment the Holder has received written notice from the Company or a holder of Senior Debt (as defined below) that there exists or, after giving effect to such payment, there would exist any default in respect of any Senior Debt or under any agreement pursuant to which such Senior Debt was issued (a "DEFAULT"); PROVIDED, HOWEVER, that the foregoing restriction shall cease to apply with respect to a Default upon the earliest to occur of (i) the commencement by any holder of Senior Debt of the exercise of its remedies against the Company or its property including, without limitation, any action, suit or other legal proceeding against the Company or its property based upon such Default, or (ii) at the expiration of 180 days after the date of such notice if no holder of Senior Debt shall have commenced the exercise of its remedies against the Company or its property including, without limitation, any action, suit or other legal proceeding against the Company or its property based upon such Default. Upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all principal of, premium, if any, interest and other amounts due or to become due on all such Senior Debt shall first be paid in full in cash, cash equivalents or in any other manner acceptable to the holders of Senior Debt (hereinafter, "PAYMENT IN FULL" or "PAID IN FULL"), or such payment shall have been provided for to the satisfaction of the holders of Senior Debt, before any payment on account of principal of, premium, if any, interest or any other amounts shall be made upon this Debenture. This Debenture shall rank in priority as to payments of interest, principal, dividends and penalties (if any), upon the occurrence of a Liquidation Event (as defined below) or otherwise, senior to all capital stock of the Company and pari passu with any security or debt instrument which by its terms ranks pari passu with this Debenture. (b) PAYMENT UPON DISSOLUTION, ETC. (i) In the event of (x) any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (y) the dissolution or other winding up of the Company whether total or partial, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings or (z) any assignment for the benefit of creditors or any marshalling of the material assets or material liabilities of the Company, then, and in any such event (collectively, a "LIQUIDATION EVENT"), (A) the holders of all Senior Debt shall first be entitled to receive Payment in Full of all principal, premium, if any, interest and other amounts due or to become due on the Senior Debt (including, without limitation, any interest and charges accruing thereon in any such proceeding, notwithstanding any law to the contrary) before any payment on account of principal, premium, if any, interest or any other amounts is made on this Debenture, and (B) in any such proceedings, any payment that may be payable or deliverable in respect of this Debenture shall be paid to the holders of the Senior Debt or their representatives, unless and until the principal of, premium, if any, interest and other amounts due or to become due on all such Senior Debt shall have been Paid in Full; PROVIDED, HOWEVER, that in the event that such -11- 12 payment consists solely of shares of stock or securities of the Company as reorganized the payment of which is subordinated, at least to the same extent as the Debenture, to the payment of all Senior Debt and such payment is authorized by an order or decree made by a court of competent jurisdiction in a reorganization proceeding under any applicable law pursuant to a plan of reorganization and the rights of the holders of Senior Debt are not impaired or otherwise altered adversely by such reorganization or adjustment, no such payment shall be required hereby to be made to the holders of the Senior Debt or their representatives. (ii) In the event that any such payment shall be received by the Holder in violation of the subordination provisions hereof before all Senior Debt is Paid in Full, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of all Senior Debt remaining unpaid, or their representatives, until such Senior Debt shall have been Paid in Full, after giving effect to any concurrent payment or distribution or provision thereof to the holders of such Senior Debt. (c) SUBROGATION. Subject to the prior Payment in Full of all Senior Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt to the extent that payments otherwise payable to the Holder under the Debenture have been applied to the payment of the Senior Debt; PROVIDED, HOWEVER, that the subrogation rights of the holder of the Debenture shall be fully subordinated to the rights and remedies of the holders of Senior Debt. (d) AGREEMENTS OF HOLDER. (i) The Holder agrees that upon the commencement of any bankruptcy, insolvency or other similar case or proceeding relative to the Company, or to its creditors, as such, or to its assets, the Holder shall take such actions as may be necessary or appropriate to effectuate the subordination provisions hereof, including, without limitation, that the Holder shall (i) timely file a proof of claim in respect of the Debenture and the indebtedness and obligations evidenced hereby, provided, however, that if the Holder fails within thirty (30) days prior to the expiration of any claims bar date to file a proof of claim, any holder of Senior Debt shall be entitled to file such a proof of claim in respect thereof in the name of the Holder and the Holder irrevocably appoints the holders of Senior Debt and their representatives as its attorney-in-fact solely for such purpose; (ii) not oppose any motion filed or supported by any holder of Senior Debt for relief from stay or adequate protection in respect of the Senior Debt; and (iii) not file or accept any reorganization plan that impairs or otherwise alters adversely the rights of the holders of Senior Debt. (ii) The Company and the Holder, for themselves and their successors and assigns, covenant to execute and deliver to the holders of Senior Debt, such further instruments and to take such further action as the holders of Senior Debt may at any time or times reasonably request in order to carry out the provisions hereof. (iii) No holder of Senior Debt shall be prejudiced in its right to enforce the subordination of this Debenture by any act or failure to act on the part of the Company. -12- 13 (iv) Without notice to or the consent of the Holder, the holders of Senior Debt may at any time and from time to time, in their discretion, without impairing or releasing the subordination herein made, change the manner, place or terms of payment, or change or extend the time of payment of or renew or alter the Senior Debt, or amend or supplement in any manner any instrument evidencing the Senior Debt, any agreement pursuant to which the Senior Debt was issued or incurred or any instrument securing or relating to the Senior Debt; release any person liable in any manner for the payment or collection of the Senior Debt; exercise or refrain from exercising any rights in respect of the Senior Debt against the Company or any other person; apply any moneys or other property paid by any person or release in any manner to the Senior Debt; or accept or release any security for the Senior Debt. (e) CONTINUING OFFER. This Section shall constitute a continuing offer to all persons who, in reliance on such provisions, become holders of, or continue to hold, Senior Debt, and such provisions of this Section are made for the benefit of such holders and may not be amended, modified, changed or waived without the prior written consent of the holders of Senior Debt. (f) RIGHTS OF HOLDERS UNIMPAIRED. The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand and the Holder on the other hand. None of such provisions shall impair, as between the Company and the Holder, the obligation of the Company, which is unconditional and absolute, to pay the Holder of this Debenture the amounts due on this Debenture in accordance with the terms hereof and of the Purchase Agreement, nor shall any such provisions prevent the Holder from exercising all remedies otherwise permitted by law. Moreover, nothing contained herein shall be deemed to limit in any way the right of the Holder to convert, at any time and from time to time, the principal balance of this Debenture into shares of GMO Stock pursuant to Section 1 hereof or to receive shares of GMO Stock as payment of interest hereon pursuant to Section 4 hereof. (g) DEFINITION OF SENIOR DEBT. For purposes hereof, "SENIOR DEBT" shall mean (a) the principal of, premium, if any, accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company), and any other monetary obligations on (i) indebtedness of the Company for money borrowed, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed (including but not limited to nonrecourse borrowings secured by receivables), (ii) guaranties by the Company of indebtedness for money borrowed by any other person, or reimbursement obligations under letters of credit, in either case, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed, and (iii) indebtedness evidenced by notes, debentures, bonds or other instruments of indebtedness (other than this Debenture) for the payment of which the Company is responsible or liable, by guarantees or otherwise, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed, and (b) modifications, renewals, extensions, refinancings, refundings and replacements of any such indebtedness, obligations or guarantees; unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such indebtedness, obligations or guarantees or such modification, renewal, extension, refinancing, refunding or replacement thereof are not superior in right of payment to this Debenture and the holder of such indebtedness has consented to same; PROVIDED, HOWEVER, that Senior Debt shall not be deemed to include any obligations of the Company -13- 14 to any of its subsidiaries. Without in any way limiting the scope of the foregoing, it is expressly acknowledged and agreed that Senior Debt shall include all indebtedness, obligations and guaranties of the Company and its subsidiaries under that certain Credit Agreement dated November 14, 1996 among the Company, certain of its subsidiaries, Fleet National Bank, as administrative agent, The First National Bank of Boston, as documentation agent, and the lender parties thereto and under all notes, instruments, agreements and documents entered into pursuant thereto or in connection therewith and all modifications, renewals, extensions, refinancings, refundings and replacements thereof. 6. OPTIONAL REDEMPTION BY THE COMPANY. (a) OPTIONAL REDEMPTION. If at any time commencing eighteen (18) months after the IPO Date, the Closing Bid Price of the GMO Stock for twenty (20) consecutive Trading Days equals or exceeds 150% of the Fixed Conversion Price, the Company shall have the right, in its sole discretion, to redeem (an "OPTIONAL REDEMPTION"), any or all of the principal amount of this Debenture then outstanding at the Optional Redemption Price (as defined herein); PROVIDED, HOWEVER, that in order to effect an Optional Redemption, the Company shall have provided to the Holder thirty (30) Trading Days' prior written notice of the effective date of the Optional Redemption (the "OPTIONAL REDEMPTION DATE") and each of the Optional Redemption Conditions (as defined below) has been satisfied as of the date of such notice and as of the Optional Redemption Date. The Company shall be entitled to four (4) Optional Redemptions during the term of this Debenture. Nothing contained herein shall prevent the Holder from converting any or all of the unpaid principal amount of this Debenture at any time or from time to time prior to the Optional Redemption Date. (b) OPTIONAL REDEMPTION PRICE. The "OPTIONAL REDEMPTION PRICE" shall mean the principal amount of this Debenture being redeemed MULTIPLIED BY the Optional Redemption Percentage. The "OPTIONAL REDEMPTION PERCENTAGE" initially shall be 130%; beginning on January 1, 1998 and on the first (1st) day of each calendar quarter thereafter, the Optional Redemption Percentage shall be reduced on a straight line basis so that during the last calendar quarter occurring during the term of this Debenture (assuming that this Debenture has not been redeemed, converted or paid in full prior thereto) the Optional Redemption Percentage shall be 100%. (c) PAYMENT OF OPTIONAL REDEMPTION PRICE. (i) The Company shall pay the Optional Redemption Price to the Holder within five (5) business days of the Optional Redemption Date. In the event that the Company redeems the entire remaining unpaid principal amount of this Debenture, and pays to the Holder all interest accrued thereon and all other amounts due in connection therewith, the Holder shall return this Debenture to the Company for cancellation. (ii) The Company may, upon fifteen (15) business days' prior written notice to the Holder, pay the Optional Redemption Price in shares of GMO Stock in lieu of cash. The number of shares of GMO Stock to be delivered to the Holder in the event that the Company exercises such option shall be determined by dividing the Optional Redemption Price by the -14- 15 Conversion Price in effect on the Optional Redemption Date. The Company may exercise its option to pay the Optional Redemption Price in shares of GMO Stock only if (A) the aggregate number of such shares and of all Conversion Shares and Interest Payment Shares issuable upon the conversion of the aggregate principal amount of the Debentures outstanding immediately following such Optional Redemption has been reserved for issuance upon such conversion, (B) the GMO Stock is designated for quotation on the Nasdaq National Market system or listed on the NYSE or ASE, and actively traded thereon and (C) the Holder agrees to receive such payment in shares of GMO Stock. (iii) If the Company fails to issue and deliver the appropriate number of Conversion Shares to such Holder on or before the tenth (10th) business day following the Optional Redemption Date, the Company shall not be entitled to pay the Optional Redemption Price in shares of GMO Stock, but instead must immediately pay such amount in cash, together with Default Interest on such unpaid amount calculated from the Optional Redemption Date until the date on which such amount is paid. (d) OPTIONAL REDEMPTION CONDITIONS. The "OPTIONAL REDEMPTION CONDITIONS" are as follows: (i) The GMO Registration Statement (as defined in the Registration Rights Agreement) is effective and available for resales of the Conversion Shares, or the Conversion Shares may be sold pursuant to Rule 144(k) under the Securities Act or any successor rule or provision; and (ii) the GMO Stock is designated for quotation on the Nasdaq National Market system, or listed on the NYSE or the ASE. 7. MANDATORY REDEMPTION BY THE COMPANY. (a) MANDATORY REDEMPTION. In the event that a Mandatory Redemption Event (as defined herein) occurs, the Holder shall have the right, upon written notice to the Company, to have all or any portion of the unpaid principal amount of this Debenture redeemed by the Company (a "MANDATORY REDEMPTION") at the Mandatory Redemption Price (as defined herein) in same day funds. Such notice shall specify the effective date of such Mandatory Redemption (the "MANDATORY REDEMPTION DATE") and the amount of principal to be redeemed. The Optional Redemption Date and the Mandatory Redemption Date are sometimes each referred to herein as a "REDEMPTION DATE". (b) MANDATORY REDEMPTION PRICE. The "MANDATORY REDEMPTION PRICE" shall be equal to (A) the unpaid principal amount of this Debenture being redeemed PLUS (B) interest at an annual rate of fifteen percent (15%) (compounded annually) computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed from the Issue Date through the Mandatory Redemption Date MINUS (C) the amount of any interest which has accrued on such principal amount pursuant to Section 4 hereof and been paid to the Holder prior to the Mandatory Redemption Date PLUS (D) any other amounts which may be payable hereunder as of the Mandatory Redemption Date (including any interest which has accrued on such principal amount pursuant to -15- 16 Section 4 hereof but which remains unpaid); PROVIDED, HOWEVER, that with respect to a Mandatory Redemption which occurs as a result of a Mandatory Redemption Event described in subparagraph 7(d)(v) below, the Mandatory Redemption Price shall be equal to the principal amount of this Debenture being redeemed DIVIDED BY the Applicable Percentage in effect on the Mandatory Redemption Date. (c) PAYMENT OF MANDATORY REDEMPTION PRICE. (i) The Company shall pay the Mandatory Redemption Price to the Holder within five (5) business days of the Mandatory Redemption Date. In the event that the Company redeems the entire remaining unpaid principal amount of this Debenture, and pays to the Holder all interest accrued thereon and all other amounts due in connection therewith, the Holder shall return this Debenture to the Company for cancellation. (ii) If Company fails to pay the Mandatory Redemption Price to the Holder within five (5) business days of the Mandatory Redemption Date, the Holder shall be entitled to interest thereon at an annual rate equal to the lower of (x) the "prime" rate (as published in the Wall Street Journal) on such fifth (5th) business day PLUS three percent (3%) and (y) the highest rate permitted by applicable law from the Mandatory Redemption Date until the Mandatory Redemption Price has been paid in full. (d) MANDATORY REDEMPTION EVENT. Each of the following events shall be deemed a "MANDATORY REDEMPTION EVENT": (i) the Company fails for any reason (including without limitation as a result of not having a sufficient number of shares of GMO Stock authorized and reserved for issuance) to issue certificates representing shares of GMO Stock to the Holder in accordance with the provisions of this Debenture upon Conversion of any principal amount hereof, and such failure continues for ten (10) business days; (ii) the Company breaches, in a material respect, any covenant or other material term or condition of this Debenture, the Purchase Agreement, the Registration Rights Agreement or any other agreement, certificate or instrument delivered by the Company at the Closing (as defined in the Purchase Agreement)(the "TRANSACTION DOCUMENTS"), and such breach continues for a period of ten (10) business days after written notice thereof to the Company from the Holder; (iii) the GMO Registration Statement (as defined in the Registration Rights Agreement) is not declared effective on or prior to the GMO Registration Deadline (as defined in the Registration Rights Agreement) or if the GMO Registration Statement has been declared effective by such date, and the effectiveness of the GMO Registration Statement lapses for any reason (including without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of Conversion Shares in accordance with the terms of the GMO Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) business days, PROVIDED that the cause of such lapse or unavailability is not due to factors solely within the control of the Holder, and PROVIDED, FURTHER, that the GMO Registration Statement shall not be deemed to -16- 17 be unavailable to the Holder, for purposes of this paragraph (iii) only, during any Standstill Period (as defined in the Registration Rights Agreement); (iv) the GMO Stock is not quoted on the Nasdaq National Market or listed on the NYSE or the Amex; (v) the sale, conveyance or disposition of all or substantially all of the assets of the Company or all or substantially all of the assets comprising the Genzyme Molecular Oncology Division, the effectuation of a transaction or series of transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of, or the consolidation, merger or other business combination of the Company with or into any other entity, immediately following which the prior stockholders of the Company fail to own, directly or indirectly, at least fifty percent (50%) of the surviving entity; and (vi) the Company or any subsidiary of the Company shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; or bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company and, in the case of an involuntary action or other proceeding, remains undismissed and unstayed for a period of sixty (60) days. (e) FAILURE TO PAY REDEMPTION AMOUNTS. If the Company fails to pay the Mandatory Redemption Price within ten (10) business days of the Payable Date therefor, then the Holder shall have the right at any time, so long as the Company remains in default, to require the Company, upon written notice, to immediately issue, in lieu of the Mandatory Redemption Price, the number of shares of GMO Stock of the Company equal to the Mandatory Redemption Price DIVIDED BY the Conversion Price in effect on such Conversion Date as is specified by the Holder in writing to the Company. 8. HOLDER'S PUT OPTION. (a) PUT OPTION REVIEW PERIOD. In the event that, after the one hundred and eightieth (180th) day following the IPO Date, the Conversion Price is less than the Floor Conversion Price on every Trading Day occurring during a period of ninety (90) consecutive days (a "PUT OPTION REVIEW PERIOD"), the Holder will have the option (the "PUT OPTION") to require the Company (i) to redeem the unpaid principal amount of this Debenture in its entirety, (ii) upon such redemption, to pay an amount (the "PUT OPTION AMOUNT") equal to: (A) such unpaid principal amount PLUS (B) interest at an annual rate of fifteen percent (15%) (compounded annually) computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed from the Issue Date through the effective date of such Put Option (the "PUT OPTION EFFECTIVE DATE"), compounded annually, at an annual rate of fifteen percent (15%) MINUS (C) the amount of any interest which has accrued on such principal amount pursuant to Section 4 hereof and been paid to the Holder prior to the Put Option Effective Date PLUS (D) any other amounts which may be payable hereunder as -17- 18 of the Put Option Effective Date (including any interest which has accrued on such principal amount pursuant to Section 4 hereof but which remains unpaid). (b) DELIVERY OF PUT OPTION NOTICE. In order to effect a Put Option hereunder, the Holder must deliver a written notice (a "PUT OPTION NOTICE") to the Company on or before the fifteenth (15th) day following the 90th day of the Put Option Review Period. The Put Option Effective Date shall be deemed to occur on the day on which such notice is delivered. (c) PAYMENT OF THE PUT OPTION AMOUNT. In the event that the Holder exercises a Put Option, the Company shall pay the Put Option Amount to such Holder within five (5) business days after the Put Option Effective Date. If such Put Option Amount is not paid within such five business day period, such amount shall bear interest at an annual rate equal to the lower of (x) the "prime" rate (as published in the Wall Street Journal) on the Put Option Effective Date PLUS three percent (3%) and (y) the highest rate permitted by applicable law, for the number of days elapsed from such fifth business day until such Put Option Amount is paid in full. (d) SUBSEQUENT PUT OPTION REVIEW PERIODS. In the event that the Holder does not deliver a Put Option Notice within the fifteen day period specified in paragraph 8(b) above with respect to a Put Option Review Period, a period of ninety (90) days from the last day of such Put Review Period must elapse before another Put Option Review Period may commence. (e) EXERCISE LIMITATION. The Holder may exercise its Put Option hereunder only with respect to the first three (3) Put Option Review Periods which occur while this Debenture is outstanding. 9. MISCELLANEOUS. (a) FAILURE TO EXERCISE RIGHTS NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof. All rights and remedies of the Holder hereunder are cumulative and not exclusive of any rights or remedies otherwise available. (b) NOTICES. Any notice, demand or request required or permitted to be given by the Company or the Holder pursuant to the terms of this Debenture shall be in writing and shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with a hard copy to follow), (ii) on the next business day after timely delivery to a nationally recognized overnight courier and (iii) on the third (3rd) business day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: -18- 19 If to the Company: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attn: Chief Legal Officer Tel: 617-252-7500 Fax: 617-252-7553 and if to the Holder, at such address and facsimile number as the Holder shall have furnished the Company in the Purchase Agreement or at such other address or facsimile number as the Holder shall have furnished to the Company in accordance with this paragraph 9(b). (c) AMENDMENTS. No amendment, modification or other change may be made to this Debenture unless such amendment, modification or change is set forth in writing and is signed by the Company and the Holder. (d) TRANSFER OF DEBENTURE. With the prior consent of the Company, which consent shall not be unreasonably withheld, the Holder may sell, transfer or otherwise dispose of all, but not less than all, of this Debenture to any person or entity as long as such sale, transfer or disposition is the subject of an effective registration statement under the Securities Act or is exempt from registration thereunder; PROVIDED, HOWEVER that such consent shall not be required (but the Company shall nonetheless be entitled to receive written notice thereof) in the event of a sale, transfer or disposition of this Debenture to an affiliate (as defined in the Purchase Agreement) of the Holder. On or before the effective date of any such sale, transfer or disposition, the transferee shall deliver to the Company a Form W-8 or W-9, as applicable, duly executed by such transferee, confirming that such transferee is not subject to backup withholding. From and after the date of such sale, transfer or disposition, the transferee hereof shall be deemed to be the Holder. Upon any such sale, transfer or disposition, the Company shall, promptly following the return of this Debenture by the transferee hereof, issue and deliver to such transferee a new Debenture identical in all respects to this Debenture, in the name of such transferee, except that the principal amount of such new Debenture may reflect the unpaid principal amount of this Debenture at the time of such sale, transfer or disposition. (e) LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Debenture, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of the Debenture, if mutilated, the Company shall execute and deliver to the Holder a new debenture identical in all respects to this Debenture. Upon the issuance of any new Debenture hereunder, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge and any expenses (including reasonable fees and expenses of counsel) in connection therewith. -19- 20 (f) GOVERNING LAW. This Debenture shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law provisions thereof. -20- 21 IN WITNESS WHEREOF, the Company has caused this Debenture to be executed in its name by its duly authorized officer on the date first above written. GENZYME CORPORATION By: /s/ David J. McLachlan ----------------------------------------- Name: David J. McLachlan Title: Executive Vice President, Finance, and Chief Financial Officer -21- 22 ANNEX I SCHEDULE OF PRINCIPAL PAYMENTS, CONVERSIONS AND EXCHANGES
Principal Amount Paid, Date of Payment, Balance Converted or Exchanged Conversion or Exchange --------- ---------------------- ---------------------- $[ ],000,000 _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________
23 Schedule 1 The GMO Convertible Debentures dated August 29, 1997 are identical except with respect to the names of the holders and the principal amounts of the debentures. Pursuant to Instruction 2 to Item 601 of Regulation S-K, this schedule lists all of the original holders of the GMO Convertible Debentures and the principal amounts of their respective debentures. Principal Amount Holder of Debenture ------ ------------ Swiss Bank Corporation, London Branch $ 1,750,000 Tribeca Investments, L.L.C. $ 1,000,000 Stark International $ 750,000 SoundShore Partners L.P. $ 1,000,000 Shepherd Investments International, Ltd. $ 750,000 Proprietary Convertible Investment Group Inc. $10,000,000 Oracle Partners, L.P. $ 2,000,000 Och-Ziff Capital Management, L.P. $ 1,750,000 Employers Reinsurance Corporation $ 1,000,000 EX-10.7 8 GGO CONVERTIBLE DEBENTURE 1 Exhibit 10.7 EXHIBIT B TO PURCHASE AGREEMENT THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE, TRANSFER OR DISPOSITION. THIS DEBENTURE (THIS "DEBENTURE" AND TOGETHER WITH THE OTHER GENZYME GENERAL DIVISION ("GGD") CONVERTIBLE DEBENTURES, THE "DEBENTURES") HAS BEEN ISSUED PURSUANT TO AN EXCHANGE FOR ALL OR PART OF THE PRINCIPAL AMOUNT OF A GENZYME MOLECULAR ONCOLOGY DIVISION ("GMO") CONVERTIBLE DEBENTURE, THE FORM OF WHICH IS ATTACHED HERETO (THE "GMO DEBENTURE" AND TOGETHER WITH THE OTHER GMO DEBENTURES OF EVEN DATE THEREWITH, THE "GMO DEBENTURES"). THE DEBENTURES AND THE GMO DEBENTURES ARE SUBJECT TO THE TERMS OF (A) A PURCHASE AGREEMENT, DATED AS OF AUGUST 29, 1997 ("PURCHASE AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND THE PURCHASERS NAMED THEREIN AND (B) A REGISTRATION RIGHTS AGREEMENT, DATED AUGUST 29, 1997 ("REGISTRATION RIGHTS AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND SUCH PURCHASERS. GENZYME CORPORATION GGD CONVERTIBLE DEBENTURE New York, New York $[ ],000,000 ______________, 1998 FOR VALUE RECEIVED, Genzyme Corporation, a Massachusetts corporation (the "COMPANY"), hereby promises to pay to the order of [ ] or its assignees (the "HOLDER") the sum of [ ] MILLION DOLLARS ($[ ],000,000) in same day funds, on or before ________, 2003 (the "MATURITY DATE"), and to pay interest thereon from the date hereof (the "ISSUE DATE") as provided herein. The following terms shall apply to this Debenture: 1. CONVERSION. (a) RIGHT TO CONVERT. Subject to the limitation contained in paragraph 1(g) below, the holder of this Debenture (the "HOLDER") shall have the right to convert all or any part of the outstanding unpaid principal of this Debenture at any time and from time to time on or after the Issue Date into fully paid and non-assessable shares, free and clear of any liens, claims, preemptive rights or encumbrances imposed by or through the Company (the "CONVERSION SHARES"), of 2 Genzyme General Division Common Stock, $.01 par value (the "GGD STOCK"), in accordance with the terms hereof (a "CONVERSION"). (b) CONVERSION NOTICE. In order to convert principal of this Debenture, or any portion thereof, the Holder shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern time, on the date on which the Holder wishes to effect such Conversion (the "CONVERSION DATE"), a notice of conversion to the Company and to its designated transfer agent for the GGD Stock (the "TRANSFER AGENT") stating the principal amount to be converted, the amount of interest accrued on the then unpaid principal balance of this Debenture as provided herein up to and including the Conversion Date, the applicable Conversion Price and a calculation of the number of shares of GGD Stock issuable upon such Conversion (a "CONVERSION NOTICE"). The Holder shall not be required to physically surrender this Debenture to the Company in order to effect a Conversion. The Company shall maintain a record showing, at any given time, the unpaid principal amount of this Debenture and the date of each Conversion or other payment of principal hereof. The Holder shall amend Annex I hereto upon any such Conversion or payment of principal to reflect the unpaid principal amount hereof. In the case of a dispute as to the calculation of the Conversion Price or the number of Conversion Shares issuable upon a Conversion, the Company shall promptly issue to the Holder the number of Conversion Shares that are not disputed and shall submit the disputed calculations to its independent accountants within one (1) business day of receipt of the Holder's Conversion Notice. The Company shall cause such accountant to calculate the Conversion Price and the number of Conversion Shares issuable as provided herein and to notify the Company and the Holder of the results in writing no later than two (2) business days following the day on which it received the disputed calculations. Such accountant's calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the Company. (c) NUMBER OF CONVERSION SHARES; CONVERSION PRICE. The number of Conversion Shares to be delivered by the Company pursuant to a Conversion shall be equal to the principal amount of this Debenture specified in the Conversion Notice DIVIDED BY the Conversion Price. The "CONVERSION PRICE" shall mean (x) the average of the Closing Bid Prices for the GGD Stock on the five (5) Trading Days occurring immediately prior to (but not including) GGD Issue Date (as defined in the GMO Debentures) TIMES (y) one hundred and thirteen percent (113%). Conversions may be effected in minimum principal amounts of $100,000 (or such smaller amount of principal as may remain unpaid at the time of such Conversion). (d) DELIVERY OF GGD STOCK UPON CONVERSION. Upon receipt of a Conversion Notice pursuant to paragraph 1(b) above, the Company shall, no later than the close of business on the third (3rd) business day following the Conversion Date set forth in such Conversion Notice (the "DELIVERY DATE"), issue and deliver or caused to be delivered to the Holder the number of Conversion Shares as shall be determined as provided herein. If any Conversion would create a fractional Conversion Share, such fractional Conversion Share shall be disregarded and the number of Conversion Shares issuable upon such Conversion, in the aggregate, shall be the next higher number of Conversion Shares. Certificates representing Conversion Shares shall not contain any restrictive legend as long as the sale of such Conversion Shares is covered by an effective Registration Statement (as defined in the Registration Rights Agreement) or may be made pursuant to Rule 144(k) under the Securities Act or any successor rule or provision. -2- 3 (e) FAILURE TO DELIVER CONVERSION SHARES. In the event that the Company fails to deliver to the Holder the number of Conversion Shares specified in the applicable Conversion Notice on or before the Delivery Date therefor for any reason (a "CONVERSION DEFAULT"), and such Conversion Default continues for longer than seven (7) business days, the Company shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") in the amount of (i) (N/365) MULTIPLIED BY (ii) the unpaid principal amount of this Debenture represented by the Conversion Shares which remain the subject of such Conversion Default MULTIPLIED BY (iii) the lower of twenty-four percent (24%) and the maximum rate permitted by applicable law, where "N" equals the number of days elapsed between the original Delivery Date of such Conversion Shares and the earlier to occur of (A) the date on which all of such Conversion Shares are issued and delivered to the Holder and (B) the date on which the principal amount represented thereby is redeemed pursuant to the terms of this Debenture. Cash amounts payable hereunder shall be paid on or before the fifth (5th) business day of the calendar month following the calendar month in which such amount has accrued. Nothing herein shall limit the Holder's right to pursue remedies with respect to its actual damages resulting from a Conversion Default (including, without limitation, damages relating to any purchase of shares of GGD Stock by the Holder to make delivery on a sale effected in anticipation of receiving Conversion Shares upon Conversion), and the Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). (f) PAYMENT OF PRINCIPAL AT MATURITY; OPTIONAL CONVERSION. On the Maturity Date, the Company shall pay to the Holder the amount of the unpaid principal amount of this Debenture in same day funds; PROVIDED, HOWEVER, that if (i) the Holder agrees to receive such payment in shares of GGD Stock and (ii) the Company has satisfied each of the Optional Conversion Conditions (as defined below), such unpaid principal amount may be converted into the number of shares of GGD Stock equal to the amount of such unpaid principal amount DIVIDED BY the Conversion Price (an "OPTIONAL CONVERSION"), and the Maturity Date shall be deemed the Conversion Date with respect to such Optional Conversion. If an Optional Conversion occurs, the Company and the Holder shall follow the procedures for Conversion set forth in this Section 1; PROVIDED, HOWEVER, that the Holder shall not be required to send the Conversion Notice contemplated by paragraph 1(b) above. The "OPTIONAL CONVERSION CONDITIONS" are as follows: (i) the GGD Common Stock shall be designated for quotation on the Nasdaq National Market system or listed on the New York Stock Exchange ("NYSE") or the American Stock Exchange ("ASE"); (ii) the market value of the outstanding shares of GGD Stock on the Maturity Date (not including any such shares represented by the outstanding principal balance of this Debenture) shall be greater than eighty million ($80,000,000); and (iii) the GGD Stock shall have an average daily trading volume of at least eight hundred thousand dollars $800,000 for the period of one hundred and eighty (180) days immediately prior to the fifteenth (15th) day of the calendar month occurring immediately prior to the calendar -3- 4 month in which the Maturity Date occurs (based on the weighted average of the Closing Bid Prices of the GGD Stock during such period). (g) LIMITATIONS ON RIGHT TO CONVERT. In no event shall the Holder be permitted to convert principal of this Debenture in excess of that amount of principal upon the Conversion of which (x) the number of shares of GGD Stock beneficially owned by the Holder (other than shares of GGD Stock which may be deemed beneficially owned except for being subject to a limitation on conversion or exercise analogous to the limitation contained in this paragraph (g)) PLUS (y) the number of shares of GGD Stock issuable upon the Conversion of such principal amount is equal to or exceeds (z) 4.99% of the number of shares of GGD Stock then issued and outstanding. The determination of whether the limitation contained in this paragraph (g) applies and whether principal of this Debenture is convertible (in relation to other securities owned by the Holder) shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be such Holder's determination that such limitation does not apply and that the principal amount of this Debenture to which such Conversion Notice relates is convertible. This paragraph may be amended (A) in order to clarify an ambiguity or otherwise to give effect to the limitation contained in this paragraph (g), by the Board of Directors of the Company and the written consent of the Holders of at least 66% of the aggregate unpaid principal amount of the Debentures then outstanding and (B) for any other reason, with the further consent of the holders of a majority of the shares of the Company's common stock then outstanding. In the event that the limitation contained in this paragraph (g) applies to all or a portion of the unpaid principal amount of this Debenture, nothing contained herein shall be deemed to restrict the right of the Holder to convert such principal amount at such time as such Conversion will not violate such limitation. (h) CERTAIN DEFINITIONS. "TRADING DAY" shall mean any day on which the GGD Stock is traded for any period on the Nasdaq National Market or on the principal securities exchange or market on which the GGD Stock is then traded. "CLOSING BID PRICE" means, with respect to a security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported (i) if the Nasdaq National Market is the principal market on which the GGD Stock is then traded, by Nasdaq and (ii) if the Nasdaq National Market is not such principal market, by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting closing bid prices of such security, a comparable reporting service of national reputation selected by the Company and reasonably acceptable to holders of a majority of the unpaid principal amount of the Debentures then outstanding (collectively, "BLOOMBERG"), or if the foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Holders (which may be a holder) of at least 50% of the aggregate unpaid principal amount of the Debentures then outstanding, with the reasonable costs of such appraisal to be borne by the Company. 2. ADJUSTMENTS TO CONVERSION PRICE. -4- 5 (a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK DIVIDEND, ETC. If prior to the Conversion of the entire principal amount of this Debenture, (A) the number of outstanding shares of GGD Stock is increased by a stock split, stock dividend, reclassification, the distribution to holders of GGD Stock of rights or warrants entitling them to subscribe for or purchase GGD Stock at less than the current market price thereof as of the date such right or warrant first becomes exercisable (other than pursuant to the Company's equity incentive plan, 401(k) plan, stock option plans, employee stock purchase plan or any warrants outstanding as of the Issue Date), or other similar event, the Conversion Price shall be proportionately reduced, or (B) the number of outstanding shares of GGD Stock is decreased by a reverse stock split, combination or reclassification of shares or other similar event, the Conversion Price shall be proportionately increased. In such event, the Company shall notify the Transfer Agent of such change on or before the effective date thereof. For purposes of this paragraph 2(a), the "CURRENT MARKET PRICE" per share of GGD Stock on any date shall be the average of the Closing Bid Prices for the GGD Stock on the five (5) consecutive Trading Days occurring immediately prior to (but not including) such date. Nothing contained herein shall be construed to require the adjustment of the Conversion Price in the event that the Company issues additional series or classes of its common stock as long as any such issuance does not result in dilution of the shares of GGD Stock then outstanding. (b) ADJUSTMENT TO CONVERSION PRICE. If during the reference period for determination of the Conversion Price, the number of outstanding shares of GGD Stock is increased or decreased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event for all Trading Days included in such calculation. (c) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, prior to the Conversion of the entire principal amount of this Debenture, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of GGD Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity or there is a sale of all or substantially all the Company's assets or there is a change of control transaction with respect to which, in any such case, the Holder does not exercise its right to a Mandatory Redemption (as defined below) of the outstanding principal hereof, then the Holder shall thereafter have the right to receive upon Conversion of the principal amount of this Debenture, upon the terms and conditions specified herein and in lieu of the shares of GGD Stock immediately theretofore issuable upon conversion, such stock, securities and/or other assets, if any, which the Holder would have been entitled to receive in such transaction had such principal amount been converted immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Conversion Price and of the number of shares issuable upon a Conversion) shall thereafter be applicable as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise hereof. The Company shall not effect any transaction described in this paragraph 2(c) unless (i) it first gives to the Holder prior notice of such merger, consolidation, exchange of shares, recapitalization, reorganization, redemption or other similar event, and makes a public announcement of such event at the same time that it gives such notice and (ii) the resulting successor or acquiring entity (if not the Company) -5- 6 assumes by written instrument the obligations of the Company under this Debenture, including the terms of this paragraph 2(c). (d) DISTRIBUTION OF ASSETS. If, prior to the Conversion of the entire principal amount of this Debenture, the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of GGD Stock as a partial liquidating dividend, by way of return of capital or otherwise, including any dividend or distribution in cash or shares of capital stock of a subsidiary of the Company (collectively, a "DISTRIBUTION"), then, upon a Conversion by the Holder occurring after the record date for determining shareholders entitled to such Distribution but prior to the effective date of such Distribution, the Holder shall be entitled to receive the amount of such assets which would have been payable to the Holder had the Holder been the holder of such shares of GGD Stock on the record date for the determination of shareholders entitled to such Distribution. The Conversion Price for amounts of principal of this Debenture not converted prior to the effective date of a Distribution shall be reduced to a price determined by decreasing the Conversion Price in effect immediately prior to the record date of the Distribution by an amount equal to the fair market value of the assets so distributed, as determined by mutual agreement of the Company and the Holder. (e) NO FRACTIONAL SHARES. If any adjustment under this Section 2 would create a fractional share of GGD Stock or a right to acquire a fractional share of GGD Stock, such fractional share shall be disregarded and the number of shares of GGD Stock issuable upon Conversion shall be the next higher number of shares. 3. INTEREST. (a) INTEREST RATE; STOCK PAYMENT OPTION. This Debenture shall bear interest on the unpaid principal amount hereof at an annual rate of five percent (5%) from the Issue Date, computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed. Interest accrued hereunder shall be due and payable on each Conversion Date, on a Redemption Date (as defined herein) and on the Maturity Date, but, in the case of interest which is due on a Conversion Date and payable in cash, such interest may be paid on the following business day in the event that a Conversion Notice (as defined herein) is delivered to the Company after 2 p.m., eastern time, on the Conversion Date. Interest accrued hereunder shall not be subject to a "gross-up" in the event that backup withholding is required by applicable law. Interest due on a Conversion Date or an Optional Redemption Date may be paid either in cash or, at the option of the Company (the "STOCK PAYMENT OPTION"), and upon satisfaction of the conditions set forth in paragraph 3(b) below, in shares of GGD Stock or in shares of capital stock into which such GGD Stock may be changed or reclassified. The shares of GGD Stock to be issued and delivered by the Company pursuant to the Stock Payment Option shall be fully paid and non-assessable, free and clear of any liens, claims, preemptive rights or encumbrances imposed by or through the Company, in an amount calculated in accordance with paragraph 3(c) below (the "INTEREST PAYMENT SHARES"). Any amount of interest payable on this Debenture in cash which is not paid within three (3) business days of the date when the same becomes due and payable hereunder (the "PAYABLE DATE") shall bear interest at an annual rate equal to the lower of (x) the "prime" rate (as published in the Wall Street Journal) on the Payable Date PLUS three percent (3%) and (y) the highest rate permitted -6- 7 by applicable law, for the number of days elapsed from such third (3rd) business day until such amount is paid in full ("DEFAULT INTEREST"). The Company may not make payments of Default Interest in shares of GGD Stock. (b) CONDITIONS TO STOCK PAYMENT OPTION. If the Company wishes to exercise the Stock Payment Option, it may do so only if each of the following conditions has been satisfied as of the relevant Conversion Date: (i) the number of shares of GGD Stock authorized, unissued and unreserved for all other purposes, or held in the Company's treasury, is sufficient to pay the aggregate number of (x) Conversion Shares issuable on such Conversion Date assuming the conversion in full of the Debentures at the Conversion Price and (y) the number of Interest Payment Shares issuable pursuant to such option; (ii) the Interest Payment Shares are authorized for quotation on the Nasdaq National Market or for listing or quotation on any other national securities exchange or market on which the GGD Stock may be listed; (iii) the GGD Registration Statement (as defined in the Registration Rights Agreement) is effective and available for the sale of the Interest Payment Shares by the Holder; (iv) a Mandatory Redemption Event (as defined herein) shall not have occurred and be continuing; (v) the Company has delivered to the Holder a certificate, signed by an executive officer of the Company, setting forth: o the amount of the interest payment to which the Holder is entitled and, if not the same, the amount of such payment to be made in Interest Payment Shares; o the number of Interest Payment Shares to be delivered in payment of such interest, and the calculation therefor; and o a statement to the effect that all of the conditions set forth in paragraphs 3(b)(i) - (iv) have been satisfied; and (vi) the Holder shall have consented in writing to the Company's use of the Stock Payment Option on such Conversion Date. (c) DELIVERY OF INTEREST PAYMENT SHARES. If the Company elects to exercise the Stock Payment Option, the Company shall deliver to such Holder, on or before the third (3rd) business day following the applicable Conversion Date (the "INTEREST PAYMENT SHARE DELIVERY DATE"), one or more certificates representing the aggregate number of whole Interest Payment Shares that is -7- 8 determined by dividing (x) the amount of interest which would otherwise be payable in cash to such Holder on the applicable Conversion Date by (y) the Conversion Price. No fractional Interest Payment Shares shall be issued; the Company shall, in lieu thereof, either issue a number of Interest Payment Shares which reflects a rounding up to the next whole number of shares or pay such amount in cash. (d) FAILURE TO DELIVER INTEREST PAYMENTS SHARES. If the Company fails to issue and deliver the appropriate number of Interest Payment Shares to such Holder on or before the tenth (10th) business day following the Interest Payment Share Delivery Date, the Company shall not be entitled to utilize the Stock Payment Option in respect of such interest payment, but instead must immediately pay such interest payment in cash, together with Default Interest on such unpaid amount calculated from the applicable Payable Date until the date on which such amount is paid. (e) NOTICE OF EXERCISE. Not later than five (5) business days immediately prior to the first day of each calendar month during which any principal of this Debenture remains unpaid and outstanding, the Company shall notify the Holder in writing whether the Company intends, assuming satisfaction of the conditions set forth in subparagraph (b) above, to pay interest in Interest Payment Shares in lieu of cash on any Conversion Date occurring during that month or during such longer period as the Company may specify. 4. PRIORITY; SUBORDINATION. (a) NO PAYMENT IF DEFAULT ON SENIOR INDEBTEDNESS. No payment of principal of, premium, if any, or interest on this Debenture or on account of any purchase or redemption or other acquisition of the Debenture, whether at maturity or otherwise, shall be made upon, or accepted with respect to, this Debenture, and the Holder shall not initiate any action to accelerate the maturity of the Debenture or exercise any remedy to seek collection if at the time of such payment the Holder has received written notice from the Company or a holder of Senior Debt (as defined below) that there exists or, after giving effect to such payment, there would exist any default in respect of any Senior Debt or under any agreement pursuant to which such Senior Debt was issued (a "DEFAULT"); PROVIDED, HOWEVER, that the foregoing restriction shall cease to apply with respect to a Default upon the earliest to occur of (i) the commencement by any holder of Senior Debt of the exercise of its remedies against the Company or its property including, without limitation, any action, suit or other legal proceeding against the Company or its property based upon such Default, or (ii) at the expiration of 180 days after the date of such notice if no holder of Senior Debt shall have commenced the exercise of its remedies against the Company or its property including, without limitation, any action, suit or other legal proceeding against the Company or its property based upon such Default. Upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all principal of, premium, if any, interest and other amounts due or to become due on all such Senior Debt shall first be paid in full in cash, cash equivalents or in any other manner acceptable to the holders of Senior Debt (hereinafter, "PAYMENT IN FULL" or "PAID IN FULL"), or such payment shall have been provided for to the satisfaction of the holders of Senior Debt, before any payment on account of principal of, premium, if any, interest or any other amounts shall be made upon this Debenture. This Debenture shall rank in priority as to payments of interest, principal, dividends and penalties (if any), upon the occurrence of a Liquidation Event -8- 9 (as defined below) or otherwise, senior to all capital stock of the Company and pari passu with any security or debt instrument which by its terms ranks pari passu with this Debenture. (b) PAYMENT UPON DISSOLUTION, ETC. (i) In the event of (x) any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (y) the dissolution or other winding up of the Company whether total or partial, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings or (z) any assignment for the benefit of creditors or any marshalling of the material assets or material liabilities of the Company, then, and in any such event (collectively, a "LIQUIDATION EVENT"), (A) the holders of all Senior Debt shall first be entitled to receive Payment in Full of all principal, premium, if any, interest and other amounts due or to become due on the Senior Debt (including, without limitation, any interest and charges accruing thereon in any such proceeding, notwithstanding any law to the contrary) before any payment on account of principal, premium, if any, interest or any other amounts is made on this Debenture, and (B) in any such proceedings, any payment that may be payable or deliverable in respect of this Debenture shall be paid to the holders of the Senior Debt or their representatives, unless and until the principal of, premium, if any, interest and other amounts due or to become due on all such Senior Debt shall have been Paid in Full; PROVIDED, HOWEVER, that in the event that such payment consists solely of shares of stock or securities of the Company as reorganized the payment of which is subordinated, at least to the same extent as the Debenture, to the payment of all Senior Debt and such payment is authorized by an order or decree made by a court of competent jurisdiction in a reorganization proceeding under any applicable law pursuant to a plan of reorganization and the rights of the holders of Senior Debt are not impaired or otherwise altered adversely by such reorganization or adjustment, no such payment shall be required hereby to be made to the holders of the Senior Debt or their representatives. (ii) In the event that any such payment shall be received by the Holder in violation of the subordination provisions hereof before all Senior Debt is Paid in Full, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of all Senior Debt remaining unpaid, or their representatives, until such Senior Debt shall have been Paid in Full, after giving effect to any concurrent payment or distribution or provision thereof to the holders of such Senior Debt. (c) SUBROGATION. Subject to the prior Payment in Full of all Senior Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt to the extent that payments otherwise payable to the Holder under the Debenture have been applied to the payment of the Senior Debt; PROVIDED, HOWEVER, that the subrogation rights of the holder of the Debenture shall be fully subordinated to the rights and remedies of the holders of Senior Debt. (d) AGREEMENTS OF HOLDER. -9- 10 (i) The Holder agrees that upon the commencement of any bankruptcy, insolvency or other similar case or proceeding relative to the Company, or to its creditors, as such, or to its assets, the Holder shall take such actions as may be necessary or appropriate to effectuate the subordination provisions hereof, including, without limitation, that the Holder shall (i) timely file a proof of claim in respect of the Debenture and the indebtedness and obligations evidenced hereby, provided, however, that if the Holder fails within thirty (30) days prior to the expiration of any claims bar date to file a proof of claim, any holder of Senior Debt shall be entitled to file such a proof of claim in respect thereof in the name of the Holder and the Holder irrevocably appoints the holders of Senior Debt and their representatives as its attorney-in-fact solely for such purpose; (ii) not oppose any motion filed or supported by any holder of Senior Debt for relief from stay or adequate protection in respect of the Senior Debt; and (iii) not file or accept any reorganization plan that impairs or otherwise alters adversely the rights of the holders of Senior Debt. (ii) The Company and the Holder, for themselves and their successors and assigns, covenant to execute and deliver to the holders of Senior Debt, such further instruments and to take such further action as the holders of Senior Debt may at any time or times reasonably request in order to carry out the provisions hereof. (iii) No holder of Senior Debt shall be prejudiced in its right to enforce the subordination of this Debenture by any act or failure to act on the part of the Company. (iv) Without notice to or the consent of the Holder, the holders of Senior Debt may at any time and from time to time, in their discretion, without impairing or releasing the subordination herein made, change the manner, place or terms of payment, or change or extend the time of payment of or renew or alter the Senior Debt, or amend or supplement in any manner any instrument evidencing the Senior Debt, any agreement pursuant to which the Senior Debt was issued or incurred or any instrument securing or relating to the Senior Debt; release any person liable in any manner for the payment or collection of the Senior Debt; exercise or refrain from exercising any rights in respect of the Senior Debt against the Company or any other person; apply any moneys or other property paid by any person or release in any manner to the Senior Debt; or accept or release any security for the Senior Debt. (e) CONTINUING OFFER. This Section shall constitute a continuing offer to all persons who, in reliance on such provisions, become holders of, or continue to hold, Senior Debt, and such provisions of this Section are made for the benefit of such holders and may not be amended, modified, changed or waived without the prior written consent of the holders of Senior Debt. (f) RIGHTS OF HOLDERS UNIMPAIRED. The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand and the Holder on the other hand. None of such provisions shall impair, as between the Company and the Holder, the obligation of the Company, which is unconditional and absolute, to pay the Holder of this Debenture the amounts due on this Debenture in accordance with the terms hereof and of the Purchase Agreement, nor shall any such provisions prevent the Holder from exercising all remedies otherwise permitted by law. Moreover, nothing contained herein shall be -10- 11 deemed to limit in any way the right of the Holder to convert, at any time and from time to time, the principal balance of this Debenture into shares of GGD Stock pursuant to Section 1 hereof or to receive shares of GGD Stock as payment of interest hereon pursuant to Section 3 hereof. (g) DEFINITION OF SENIOR DEBT. For purposes hereof, "SENIOR DEBT" shall mean (a) the principal of, premium, if any, accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company), and any other monetary obligations on (i) indebtedness of the Company for money borrowed, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed (including but not limited to nonrecourse borrowings secured by receivables), (ii) guaranties by the Company of indebtedness for money borrowed by any other person, or reimbursement obligations under letters of credit, in either case, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed, and (iii) indebtedness evidenced by notes, debentures, bonds or other instruments of indebtedness (other than this Debenture) for the payment of which the Company is responsible or liable, by guarantees or otherwise, whether outstanding on the date of this Debenture or thereafter created, incurred or assumed, and (b) modifications, renewals, extensions, refinancings, refundings and replacements of any such indebtedness, obligations or guarantees; unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such indebtedness, obligations or guarantees or such modification, renewal, extension, refinancing, refunding or replacement thereof are not superior in right of payment to this Debenture and the holder of such indebtedness has consented to same; PROVIDED, HOWEVER, that Senior Debt shall not be deemed to include any obligations of the Company to any of its subsidiaries. Without in any way limiting the scope of the foregoing, it is expressly acknowledged and agreed that Senior Debt shall include all indebtedness, obligations and guaranties of the Company and its subsidiaries under that certain Credit Agreement dated November 14, 1996 among the Company, certain of its subsidiaries, Fleet National Bank, as administrative agent, The First National Bank of Boston, as documentation agent, and the lender parties thereto and under all notes, instruments, agreements and documents entered into pursuant thereto or in connection therewith and all modifications, renewals, extensions, refinancings, refundings and replacements thereof. 5. OPTIONAL REDEMPTION BY THE COMPANY. (a) OPTIONAL REDEMPTION. At any time beginning after the period of thirty-six (36) months following the Issue Date, the Company shall have the right, in its sole discretion, to redeem (an "OPTIONAL REDEMPTION"), any or all of the principal amount of this Debenture then outstanding at the Optional Redemption Price (as defined herein); PROVIDED, HOWEVER, that in order to effect an Optional Redemption, the Company shall have provided to the Holder thirty (30) Trading Days' prior written notice of the effective date of the Optional Redemption (the "OPTIONAL REDEMPTION DATE") and each of the Optional Redemption Conditions (as defined below) has been satisfied as of the date of such notice and as of the Optional Redemption Date. The Company shall be entitled to four (4) Optional Redemptions during the term of this Debenture. Nothing contained herein shall prevent the Holder from converting any or all of the unpaid principal amount of this Debenture at any time or from time to time prior to the Optional Redemption Date. -11- 12 (b) OPTIONAL REDEMPTION PRICE. The "OPTIONAL REDEMPTION PRICE" shall mean the principal amount of this Debenture being redeemed MULTIPLIED BY the Optional Redemption Percentage. The "OPTIONAL REDEMPTION PERCENTAGE" shall mean, where "X" represents the Issue Date:
Number of Months After Issue Date Optional Redemption Percentage ---------------- ------------------------------ 36 < X <= 48 103% 48 < X <- 60 100%
(c) PAYMENT OF OPTIONAL REDEMPTION PRICE. (i) The Company shall pay the Optional Redemption Price to the Holder within five (5) business days of the Optional Redemption Date. In the event that the Company redeems the entire remaining unpaid principal amount of this Debenture, and pays to the Holder all interest accrued thereon and all other amounts due in connection therewith, the Holder shall return this Debenture to the Company for cancellation. (ii) The Company may, upon fifteen (15) business days' prior written notice to the Holder, pay the Optional Redemption Price in shares of GGD Stock in lieu of cash. The number of shares of GGD Stock to be delivered to the Holder in the event that the Company exercises such option shall be determined by dividing the Optional Redemption Price by the Conversion Price. The Company may exercise its option to pay the Optional Redemption Price in shares of GGD Stock only if (A) the aggregate number of such shares and of all Conversion Shares and Interest Payment Shares issuable upon the conversion of the aggregate principal amount of the Debentures outstanding immediately following such Optional Redemption has been reserved for issuance upon such conversion and (B) the GGD Stock is designated for quotation on the Nasdaq National Market system or listed on the NYSE or ASE, and actively traded thereon and (C) the Holder agrees to receive such payment in shares of GGD Stock. (iii) If the Company fails to issue and deliver the appropriate number of Conversion Shares to such Holder on or before the tenth (10th) business day following the Optional Redemption Date, the Company shall not be entitled to pay the Optional Redemption Price in shares of GGD Stock, but instead must immediately pay such amount in cash, together with Default Interest on such unpaid amount calculated from the Optional Redemption Date until the date on which such amount is paid. (d) OPTIONAL REDEMPTION CONDITIONS. The "OPTIONAL REDEMPTION CONDITIONS" are as follows: (i) The GGD Registration Statement (as defined in the Registration Rights Agreement) is effective and available for resales of the Conversion Shares, or the Conversion Shares may be sold pursuant to Rule 144(k) under the Securities Act or any successor rule or provision; and -12- 13 (ii) the GGD Stock is designated for quotation on the Nasdaq National Market system, or listed on the NYSE or the ASE. 6. MANDATORY REDEMPTION BY THE COMPANY. (a) MANDATORY REDEMPTION. In the event that a Mandatory Redemption Event (as defined herein) occurs, the Holder shall have the right, upon written notice to the Company, to have all or any portion of the unpaid principal amount of this Debenture redeemed by the Company (a "MANDATORY REDEMPTION") at the Mandatory Redemption Price (as defined herein) in same day funds. Such notice shall specify the effective date of such Mandatory Redemption (the "MANDATORY REDEMPTION DATE") and the amount of principal to be redeemed. The Optional Redemption Date and the Mandatory Redemption Date are sometimes each referred to herein as a "REDEMPTION DATE". (b) MANDATORY REDEMPTION PRICE. The "MANDATORY REDEMPTION PRICE" shall be equal to (A) the unpaid principal amount of this Debenture being redeemed MULTIPLIED BY one hundred and twenty percent (120%) PLUS (B) in the event of a Mandatory Redemption where the Mandatory Redemption Date occurs after the last day of the third anniversary of the Issue Date, an amount equal to interest on such unpaid principal amount at an annual rate of fifteen percent (15%) computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed (compounded annually) from the such last day through the Mandatory Redemption Date. (c) PAYMENT OF MANDATORY REDEMPTION PRICE. (i) The Company shall pay the Mandatory Redemption Price to the Holder within five (5) business days of the Mandatory Redemption Date. In the event that the Company redeems the entire remaining unpaid principal amount of this Debenture, and pays to the Holder all interest accrued thereon and all other amounts due in connection therewith, the Holder shall return this Debenture to the Company for cancellation. (ii) If Company fails to pay the Mandatory Redemption Price to the Holder within five (5) business days of the Mandatory Redemption Date, the Holder shall be entitled to interest thereon at an annual rate equal to the lower of (x) the "prime" rate (as published in the Wall Street Journal) on such fifth (5th) business day PLUS three percent (3%) and (y) the highest rate permitted by applicable law from the Mandatory Redemption Date until the Mandatory Redemption Price has been paid in full. (d) MANDATORY REDEMPTION EVENT. Each of the following events shall be deemed a "MANDATORY REDEMPTION EVENT": (i) the Company fails for any reason (including without limitation as a result of not having a sufficient number of shares of GGD Stock authorized and reserved for issuance) to issue certificates representing shares of GGD Stock to the Holder in accordance with the provisions of this Debenture upon Conversion of any principal amount hereof, and such failure continues for ten (10) business days; -13- 14 (ii) the Company breaches, in a material respect, any covenant or other material term or condition of this Debenture, the Purchase Agreement, the Registration Rights Agreement or any other agreement, certificate or instrument delivered by the Company at the Closing (as defined in the Purchase Agreement)(the "TRANSACTION DOCUMENTS"), and such breach continues for a period of ten (10) business days after written notice thereof to the Company from the Holder; (iii) the GGD Registration Statement (as defined in the Registration Rights Agreement) is not declared effective on or prior to the GGD Registration Deadline (as defined in the Registration Rights Agreement) or if the GGD Registration Statement has been declared effective by such date, and the effectiveness of the GGD Registration Statement lapses for any reason (including without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of Conversion Shares in accordance with the terms of the GGD Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) business days, PROVIDED that the cause of such lapse or unavailability is not due to factors solely within the control of the Holder, and PROVIDED, FURTHER, that the GGD Registration Statement shall not be deemed to be unavailable to the Holder, for purposes of this paragraph (iii) only, during any Standstill Period (as defined in the Registration Rights Agreement); (iv) the GGD Stock is not quoted on the Nasdaq National Market or listed on the NYSE or the Amex; (v) the sale, conveyance or disposition of all or substantially all of the assets of the Company or all or substantially all of the assets comprising the Genzyme General Division, the effectuation of a transaction or series of transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of, or the consolidation, merger or other business combination of the Company with or into any other entity, immediately following which the prior stockholders of the Company fail to own, directly or indirectly, at least fifty percent (50%) of the surviving entity; and (vi) the Company or any subsidiary of the Company shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; or bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company and, in the case of an involuntary action or other proceeding, remains undismissed and unstayed for a period of sixty (60) days. (e) FAILURE TO PAY REDEMPTION AMOUNTS. If the Company fails to pay the Mandatory Redemption Price within ten (10) business days of the Payable Date therefor, then the Holder shall have the right at any time, so long as the Company remains in default, to require the Company, upon written notice, to immediately issue, in lieu of the Mandatory Redemption Price, the number of shares of GGD Stock of the Company equal to the Mandatory Redemption Price DIVIDED BY the Conversion Price in effect on such Conversion Date as is specified by the Holder in writing to the Company. -14- 15 7. MISCELLANEOUS. (a) FAILURE TO EXERCISE RIGHTS NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof. All rights and remedies of the Holder hereunder are cumulative and not exclusive of any rights or remedies otherwise available. (b) NOTICES. Any notice, demand or request required or permitted to be given by the Company or the Holder pursuant to the terms of this Debenture shall be in writing and shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with a hard copy to follow), (ii) on the next business day after timely delivery to a nationally recognized overnight courier and (iii) on the third (3rd) business day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: If to the Company: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attn: Chief Legal Officer Tel: 617-252-7500 Fax: 617-252-7553 and if to the Holder, at such address and facsimile number as the Holder shall have furnished the Company in the Purchase Agreement or at such other address or facsimile number as the Holder shall have furnished to the Company in accordance with this paragraph 7(b). (c) AMENDMENTS. No amendment, modification or other change may be made to this Debenture unless such amendment, modification or change is set forth in writing and is signed by the Company and the Holder. (d) TRANSFER OF DEBENTURE. With the prior consent of the Company, which consent shall not be unreasonably withheld, the Holder may sell, transfer or otherwise dispose of all, but not less than all, of this Debenture to any person or entity as long as such sale, transfer or disposition is the subject of an effective registration statement under the Securities Act or is exempt from registration thereunder; PROVIDED, HOWEVER that such consent shall not be required (but the Company shall nonetheless be entitled to receive written notice thereof) in the event of a sale, transfer or disposition of this Debenture to an affiliate (as defined in the Purchase Agreement) of the Holder. On or before the effective date of any such sale, transfer or disposition, the transferee shall deliver to the Company a Form W-8 or W-9, as applicable, duly executed by such transferee, confirming that such transferee is not subject to backup withholding. From and after the date of such sale, transfer or disposition, the transferee hereof shall be deemed to be the Holder. Upon any such sale, transfer or disposition, the Company shall, promptly following the return of this Debenture by the transferee hereof, issue and deliver to such transferee a new Debenture identical in all respects to -15- 16 this Debenture, in the name of such transferee, except that the principal amount of such new Debenture may reflect the unpaid principal amount of this Debenture at the time of such sale, transfer or disposition. (e) LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Debenture, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of the Debenture, if mutilated, the Company shall execute and deliver to the Holder a new debenture identical in all respects to this Debenture. Upon the issuance of any new Debenture hereunder, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge and any expenses (including reasonable fees and expenses of counsel) in connection therewith. (f) GOVERNING LAW. This Debenture shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law provisions thereof. -16- 17 IN WITNESS WHEREOF, the Company has caused this Debenture to be executed in its name by its duly authorized officer on the date first above written. GENZYME CORPORATION By: ----------------------------------------- Name: Title: -17- 18 ANNEX I SCHEDULE OF PRINCIPAL PAYMENTS AND CONVERSIONS
Principal Amount Paid Date of Balance Or Converted Payment or Conversion --------- ------------ --------------------- $[ ],000,000 _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________ _______________________ _______________________ ______________________
EX-10.8 9 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.8 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated August 29, 1997, by and between Genzyme Corporation, a Massachusetts corporation (the "COMPANY"), and the entities whose names appear on the signature pages hereof. Such entities are each referred to herein as a "PURCHASER" and, collectively, as the "PURCHASERS". Pursuant to the terms and conditions of the Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT"), the Company has agreed to issue and sell to each Purchaser a debenture (a "GMO DEBENTURE" and, together with the other debentures issued to the Purchasers pursuant to the Purchase Agreement, the "GMO DEBENTURES") the principal of which is convertible into Genzyme Molecular Oncology Division Common Stock, $.01 par value (the "GMO STOCK"), and exchangeable, under the terms and conditions set forth in the GMO Debenture, for a debenture (a "GGD DEBENTURE" and, together with the other debentures exchangeable for the GMO Debentures, the "GGD DEBENTURES"), the principal of which is convertible into shares of Genzyme General Division Common Stock, $.01 par value (the "GGD STOCK"). The GMO Debentures and GGD Debentures are sometimes collectively referred to herein as the "DEBENTURES". In order to induce the Purchasers to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and under applicable state securities laws. In consideration of the Purchasers entering into the Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings specified: (a) "GGD FILING DEADLINE" means, upon the occurrence of an Optional Exchange Trigger Event, the thirty-fifth (35th) day following the GGD Issue Date; (b) "GGD HOLDER" means, upon issuance of the GGD Debentures, any person owning or having the right to acquire, through conversion of principal of or payment of interest on the GGD Debentures, GGD Conversion Shares; (c) "GGD ISSUE DATE" shall have the meaning specified in the GMO Debentures; (d) "GGD REGISTRATION DEADLINE" means the ninety-fifth (95th) day following the GGD Issue Date; (e) "GMO FILING DEADLINE" means the thirtieth (30th) day following the IPO Date; 2 (f) "GMO HOLDER" means any person owning or having the right to acquire, through conversion of principal of or payment of interest on the GMO Debentures, GMO Conversion Shares, including initially each Purchaser, and any permitted assignee thereof; (g) "GMO REGISTRATION DEADLINE" means the ninetieth (90th) day following the IPO Date, or such later date (not to exceed one hundred and eighty days following the IPO Date) as the managing underwriter for the IPO shall determine in good faith to be necessary in order to ensure the orderly completion of the IPO; (h) "HOLDER" means a GGD Holder or a GMO Holder, as the case may be; (i) "IPO" shall have the meaning specified in the GMO Debentures; (j) "IPO DATE" shall have the meaning specified in the GMO Debentures; (k) "OPTIONAL EXCHANGE TRIGGER EVENT" shall have the meaning specified in the GMO Debentures; (l) "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act ("RULE 415") or any successor rule providing for the offering of securities on a continuous basis ("REGISTRATION STATEMENT"), and the declaration or ordering of effectiveness of a Registration Statement by the Securities and Exchange Commission (the "COMMISSION"); and (m) "REGISTRABLE SECURITIES" means (A) the shares of GMO Stock issued or issuable either (i) upon conversion of principal of the GMO Debentures or (ii) as payment for interest due and payable thereon, and any shares of capital stock issued or issuable from time to time (with any adjustments) in replacement of, in exchange for or otherwise in respect of such shares (the "GMO CONVERSION SHARES") and (B) the shares of GGD Stock issued or issuable either (i) upon conversion of principal of the GGD Debentures or (ii) as payment for interest due and payable thereon, and any shares of capital stock issued or issuable from time to time (with any adjustments) in replacement of, in exchange for or otherwise in respect of such shares (the "GGD CONVERSION SHARES"). 2. MANDATORY REGISTRATION. (a) REGISTRATION OF GMO CONVERSION SHARES. (i) FILING OF GMO REGISTRATION STATEMENT. The Company shall use its best efforts to prepare and file with the Commission, on or before the GMO Filing Deadline, a Registration Statement on Form S-3 (or, if Form S-3 is not available, on such form of Registration Statement as is then available to effect a registration of the GMO Conversion Shares) as a "shelf" registration statement under Rule 415 covering the resale of no less than 3,475,915 shares of GMO 2 3 Stock (the "GMO REGISTRATION STATEMENT"). The GMO Registration Statement shall state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of GMO Stock as may be required to effect conversion of the GMO Debentures to prevent dilution resulting from stock splits, stock dividends or similar events, or as may become issuable upon conversion of the GMO Debentures by reason of reductions in the conversion price therefor. (ii) AVAILABILITY OF GMO REGISTRATION STATEMENT. If the GMO Registration Statement is not declared effective by the Commission on or before the GMO Registration Deadline, or if, after the GMO Registration Statement has been declared effective by the Commission, sales of GMO Conversion Shares cannot be made by a GMO Holder under the GMO Registration Statement for any reason (other than during a Standstill Period, as defined below), the Company shall pay to such GMO Holder an amount equal to (A) the lesser of two percent (2%) per month and the highest rate permitted by applicable law, TIMES (B) the aggregate unpaid principal amount of the GMO Debenture held by such GMO Holder, accruing daily and compounded monthly, (x) in the case of the initial effectiveness of the GMO Registration Statement, from the GMO Registration Deadline until the date on which the GMO Registration Statement is declared effective and (y) in the case of the unavailability of the GMO Registration Statement, from the date of such unavailability until the date on which the GMO Registration Statement becomes available for sales of GMO Conversion Shares; PROVIDED, HOWEVER, that in no event shall the amount payable by the Company hereunder exceed twelve percent (12%) of the amount specified in clause (B) of this paragraph (ii). The amounts paid or payable by the Company hereunder shall be in addition to any other remedies available to a GMO Holder at law or in equity or pursuant to the terms of the Purchase Agreement or the GMO Debenture held by such GMO Holder. (iii) MAINTENANCE OF AVAILABILITY OF GMO REGISTRATION STATEMENT. The Company shall, subject to Sections 4(f) and 4(g) hereof, maintain the effectiveness of the GMO Registration Statement from the effective date thereof until the earlier to occur of (i) the date on which all of the GMO Conversion Shares have been sold pursuant to the GMO Registration Statement and (ii) the date on which all of the remaining GMO Conversion Shares (in the reasonable opinion of counsel to the Company) may be immediately sold to the public without registration and without regard to the number of GMO Conversion Shares which may be sold by a Holder thereof at a given time (the "GMO REGISTRATION PERIOD"). In the event that the number of GMO Conversion Shares available to be sold under the GMO Registration Statement is insufficient to cover all of the GMO Conversion Shares then issuable, the Company shall amend the GMO Registration Statement, or file a new Registration Statement, or both, to the extent necessary to cover all of such shares then issuable. Any such Registration Statement shall state that, to the extent permitted by Rule 416 under the Securities Act, such Registration Statement also covers such indeterminate number of additional GMO Conversion Shares as may be required to effect conversion of the GMO Debentures to prevent dilution resulting from stock splits, stock dividends or similar events, or as may become issuable upon conversion of the GMO Debentures by reason of reductions in the conversion price therefor. Unless and until such amendment or new Registration Statement becomes effective, each GMO Holder shall have the rights described in paragraph 2(a)(ii) above. 3 4 (b) REGISTRATION OF GGD CONVERSION SHARES. (i) FILING OF GGD REGISTRATION STATEMENT. The Company shall use its best efforts to prepare and file with the Commission, on or before the GGD Filing Deadline, a Registration Statement on Form S-3 (or, if Form S-3 is not available, on such form of Registration Statement as is then available to effect a registration of the GGD Conversion Shares) as a "shelf" registration statement under Rule 415 covering the resale of no less than the Registrable Amount (as defined below) of GGD Conversion Shares (the "GGD REGISTRATION STATEMENT"). The "REGISTRABLE AMOUNT" of GGD Conversion Shares shall be that number of such shares as shall be determined by dividing (x) the unpaid principal amount of all of the GMO Debentures exchanged for GGD Debentures pursuant to the terms of the GMO Debentures, plus any accrued and unpaid interest thereon, by (y) one hundred and thirteen percent (113%) of the average of the Closing Bid Prices (as defined in the Debentures) of the GGD Stock during the five (5) Trading Days immediately prior to (but not including) the GGD Issue Date. The GGD Registration Statement shall state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of GGD Stock as may be required to effect conversion of the GGD Debentures to prevent dilution resulting from stock splits, stock dividends or similar events. (ii) AVAILABILITY OF GGD REGISTRATION STATEMENT. If the GGD Registration Statement is not declared effective by the Commission on or before the GGD Registration Deadline, or if, after the GGD Registration Statement has been declared effective by the Commission, sales of GGD Conversion Shares cannot be made by a GGD Holder under the GGD Registration Statement for any reason (other than during a Standstill Period, as defined below), the Company shall pay to such GGD Holder an amount equal to (A) the lesser of two percent (2%) per month and the highest rate permitted by applicable law, TIMES (B) the aggregate unpaid principal amount of the GGD Debenture held by such GGD Holder, accruing daily and compounded monthly, from (x) in the case of the initial effectiveness of the GGD Registration Statement, the GGD Registration Deadline until the date on which the GGD Registration Statement is declared effective and (y) in the case of the unavailability of the GGD Registration Statement, from the date of such unavailability until the date on which the GGD Registration Statement becomes available for sales of GGD Conversion Shares; PROVIDED, HOWEVER, that in no event shall the amount payable by the Company hereunder exceed twelve percent (12%) of the amount specified in clause (B) of this paragraph (ii). The amounts paid or payable by the Company hereunder shall be in addition to any other remedies available to a GGD Holder at law or in equity or pursuant to the terms of the Purchase Agreement or the GGD Debenture held by such GGD Holder. (iii) MAINTENANCE OF AVAILABILITY OF GGD REGISTRATION STATEMENT. The Company shall, subject to Sections 4(f) and 4(g) hereof, maintain the effectiveness of the GGD Registration Statement from the effective date thereof until the earlier to occur of (i) the date on which all of the GGD Conversion Shares have been sold pursuant to the GGD Registration Statement and (ii) the date on which all of the remaining GGD Conversion Shares (in the reasonable opinion of counsel to the Company) may be immediately sold to the public without registration and without regard to the amount of GGD Conversion Shares which may be sold by a Holder thereof at a given time (the "GGD REGISTRATION PERIOD"). In the event that the number of GGD Conversion 4 5 Shares available to be sold under the GGD Registration Statement is insufficient to cover all of the GGD Conversion Shares then issuable, the Company shall amend the GGD Registration Statement, or file a new Registration Statement, or both, to the extent necessary to cover all of such shares then issuable. Any such Registration Statement shall state that, to the extent permitted by Rule 416 under the Securities Act, such Registration Statement also covers such indeterminate number of additional GGD Conversion Shares as may be required to effect conversion of the GGD Debentures to prevent dilution resulting from stock splits, stock dividends or similar events. Unless and until such amendment or new Registration Statement becomes effective, each Holder shall have the rights described in Section 2(b)(ii) above. 3. PIGGYBACK REGISTRATION. (a) GMO PIGGYBACK RIGHTS. If at any time prior to the expiration of the GMO Registration Period, (i) the Company proposes to register shares of GMO Stock under the Securities Act in connection with the public offering of such shares for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a registration on Form S-4 under the Securities Act or any successor or similar form registering stock issuable upon a reclassification, a business combination involving an exchange of securities or an exchange offer for securities of the issuer or another entity) and (ii) a Registration Statement covering the sale of all of the GMO Conversion Shares issuable at such time is not then effective and available for sales thereof by the GMO Holders, the Company shall, at such time, promptly give to each GMO Holder written notice of such proposed registration. Each GMO Holder shall have thirty (30) days from its receipt of such notice to deliver to the Company a written request specifying the amount of GMO Conversion Shares that such GMO Holder intends to sell and such GMO Holder's intended method of distribution. Upon receipt of such request, the Company shall use its best efforts to cause all GMO Conversion Shares which the Company has been requested to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such GMO Holder; PROVIDED, HOWEVER, that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 3(a) without obligation to such GMO Holder. (b) GGD PIGGYBACK RIGHTS. If at any time prior to the expiration of the GGD Registration Period, (i) the Company proposes to register shares of GGD Stock under the Securities Act in connection with the public offering of such shares for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a registration on Form S-4 under the Securities Act or any successor or similar form registering stock issuable upon a reclassification, a business combination involving an exchange of securities or an exchange offer for securities of the issuer or another entity) and (ii) a Registration Statement covering the sale of all of the GGD Conversion Shares issuable at such time is not then effective and available for sales thereof by the GGD Holders, the Company shall, at such time, promptly give to each GGD Holder written notice of such proposed registration. Each GGD Holder shall have thirty (30) days from its receipt of such notice to deliver to the Company a written request specifying the amount of GGD Conversion Shares that such GGD Holder intends to sell and such GGD Holder's intended method of distribution. Upon receipt of such request, the Company shall use its best efforts to cause all 5 6 GGD Conversion Shares which the Company has been requested to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such GGD Holder; PROVIDED, HOWEVER, that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 3(b) without obligation to such GGD Holder. 4. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities pursuant to a Registration Statement hereunder, the Company shall, in addition to its other obligations hereunder: (a) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus contained in such Registration Statement as may be necessary to comply with the provisions of the Securities Act or to maintain the effectiveness of such Registration Statement, or as may be reasonably requested by a Holder in order to incorporate information concerning such Holder or such Holder's intended method of distribution; (b) prior to the effectiveness of such Registration Statement, secure the designation and quotation or listing of such Registrable Securities on the Nasdaq National Market, the New York Stock Exchange or the American Stock Exchange, as the case may be; (c) furnish to each Holder such number of copies of the prospectus included in such Registration Statement, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as a Holder may reasonably request in order to facilitate the disposition of such Holder's Registrable Securities; (d) use its best efforts to register or qualify such Registrable Securities under the securities or "blue sky" laws of such jurisdictions within the United States as shall be reasonably requested from time to time by a Holder, and do any and all other acts or things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition of such Registrable Securities in such jurisdictions; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction; (e) in the event of an underwritten public offering of such Registrable Securities, enter into and perform its obligations under an underwriting agreement, in usual and customary form reasonably acceptable to the Company, with the managing underwriter of such offering; (f) notify each Holder immediately upon the occurrence of any event as a result of which the prospectus included in such Registration Statement, as then in effect, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and as promptly as practicable, prepare, file and furnish to each Holder a reasonable number of copies of a supplement or an amendment to such prospectus as may be necessary so that such 6 7 prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; PROVIDED, HOWEVER, that the Company may delay preparing, filing and distributing any such supplement or amendment if the Company determines in good faith that such supplement or amendment would, in the reasonable judgment of the Company, (i) interfere with or affect the negotiation or completion of a transaction that is being contemplated by the Company (whether or not a final decision has been made to undertake such transaction) or (ii) involve initial or continuing disclosure obligations that are not in the best interests of the Company's stockholders at such time; PROVIDED, FURTHER, that (x) the Company will give notice of any such delay no less than five (5) business days prior to such delay, (y) such delay shall not extend for a period of more than ten (10) business days without the written consent of the Holder and (z) the Company may impose such delay no more than once in each calendar year; (g) use its best efforts to prevent the issuance of any stop order or other order suspending the effectiveness of such Registration Statement and, if such an order is issued, to obtain the withdrawal thereof at the earliest possible time and to notify each Holder of the issuance of such order and the resolution thereof; (h) furnish to each Holder, on the date that such Registration Statement becomes effective, (i) an opinion, dated such date, of outside counsel representing the Company (and reasonably acceptable to such Holder) addressed to such Holder and in form and substance as is customarily given to underwriters in an underwritten public offering, and (ii) in the case of an underwriting, a letter, dated such date, from the Company's independent certified public accountants, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to such Holder; (i) provide each Holder and its representatives the opportunity to conduct a reasonable inquiry of the Company's financial and other records during normal business hours and make available its officers, directors and employees for questions regarding information which such Holder may reasonably request in order to fulfill any due diligence obligation on its part; and (j) permit counsel for the Holders to review such Registration Statement and all amendments and supplements thereto a reasonable period of time prior to the filing thereof with the Commission. 5. OBLIGATIONS OF HOLDERS. In connection with the registration of the Registrable Securities pursuant to a Registration Statement, each Holder shall: (a) promptly furnish to the Company such information regarding itself and the intended method of disposition of Registrable Securities (i) as the Company shall reasonably request 7 8 in order to effect the registration thereof or (ii) as needed for any post-effective amendment to the Registration Statement or for any supplement to the prospectus including therein; (b) upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph 4(g), immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement until withdrawal of the stop order referred to in paragraph 4(g); and (c) if so requested by the Company, and provided a Registration Statement or Registration Statements covering the sale of all of the Registrable Securities is or are then effective, the Holder shall not sell or otherwise transfer pursuant to any such Registration Statement (i) any GMO Conversion Shares during the period from the second (2nd) business day prior to the effective date of a registration statement filed by the Company under the Securities Act (other than a Registration Statement hereunder) in connection with a public offering of GMO Stock until the thirtieth (30th) calendar day following such effective date, (ii) any GGD Conversion Shares during the period from the second (2nd) business day prior to the effective date of a registration statement filed by the Company under the Securities Act (other than a Registration Statement hereunder) in connection with a public offering of GGD Stock until the thirtieth (30th) calendar day following such effective date, and (iii) any GMO Conversion Shares or GGD Conversion Shares, as the case may be, during the period from the date specified in a notice delivered by the Company pursuant to paragraph 4(f) above that the Company has determined that it will delay, in accordance with the provisions of paragraph 4(f) above, the preparation and filing of an amendment or supplement to the prospectus included in the GMO Registration Statement or the GGD Registration Statement, as the case may be, until the expiration date specified in such notice (each of the periods described in clauses (i), (ii) and (iii) hereof being referred to herein as a "STANDSTILL PERIOD"). The Company agrees that, upon the conversion of principal of or interest on a GMO Debenture where the Conversion Date (as defined in the GMO Debenture) therefor occurs after the expiration of a Standstill Period, then until (and including) the tenth (10th) business day following the date of such expiration, the Conversion Price (as defined in the GMO Debenture) therefor shall be the lesser of (A) the lowest applicable Conversion Price in effect during the Standstill Period and (B) the applicable Conversion Price in effect on such Conversion Date. 6. INDEMNIFICATION. In the event that any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, the officers, directors, employees, agents and representatives of such Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses (whether joint or several) (collectively, including legal or other expenses reasonably incurred in connection with investigating or defending same, "LOSSES"), insofar as any such Losses arise out of or are based upon (i) any untrue statement 8 9 or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (collectively, "VIOLATIONS"). The Company will reimburse such Holder, and each such officer, director, employee, agent, representative or controlling person for any legal or other expenses as reasonably incurred by any such entity or person in connection with investigating or defending any Loss; PROVIDED, HOWEVER, that the foregoing indemnity shall not apply to amounts paid in settlement of any Loss if such settlement is effected without the prior written consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be obligated to indemnify any such person for any Loss to the extent that such Loss arises out of or is based upon and in conformity with written information furnished by such person expressly for use in such Registration Statement; and provided, further that the Company shall not be required to indemnify any such person to the extent that any Loss results from such person selling Registrable Securities (i) to a person to whom there was not sent or given, at or prior to the written confirmation of the sale of such shares, a copy of the prospectus, as most recently amended or supplemented, if the Company has previously furnished or made available copies thereof or (ii) during any period following written notice by the Company to such Holder of an event described in Section 4(f) or 4(g). (b) To the extent permitted by law, each Holder shall indemnify and hold harmless the Company, the officers, directors, employees, agents and representatives of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the 1934 Act, against any Losses to the extent (and only to the extent) that any such Losses arise out of or are based upon and in conformity with written information furnished by such Holder expressly for use in such Registration Statement including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; and such Holder will reimburse any legal or other expenses as reasonably incurred by the Company and any such officer, director, employee, agent, representative, or controlling person, in connection with investigating or defending any such Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the prior written consent of such Holder, which consent shall not be unreasonably withheld; provided, further that in no event shall any indemnity under this subsection 6(b) exceed the net purchase price of securities sold by such Holder under the Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate under applicable standards of 9 10 professional conduct due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6 with respect to such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6 or with respect to any other action. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 6 is unavailable or insufficient to hold harmless an indemnified party for any reason, the indemnified party and the indemnifying party agree to contribute to the aggregate Losses to which the indemnified party or the indemnifying party may be subject in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party in connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall any Holder be responsible for any amount in excess of the net purchase price of securities sold by it under a Registration Statement. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the indemnified party or by the indemnifying party. The Company and each of the Holders agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person who controls a Holder within the meaning of either the Securities Act or the 1934 Act and each officer, director, employee, agent or representative of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Securities Act or the 1934 Act and each officer, director, employee, agent or representative of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The obligations of the Company and each Holder under this Section 6 shall survive the conversion or redemption, if any, of the Debentures, the completion of any offering of Registrable Securities pursuant to a Registration Statement under this Agreement, or otherwise. 7. REPORTS. With a view to making available to each Holder the benefits of Rule 144 under the Securities Act ("RULE 144") and any other rule or regulation of the Commission that may at any time permit such Holder to sell securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; 10 11 (b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act and file such reports and other documents as are required by the applicable provisions of Rule 144; and (c) furnish to each Holder, so long as such Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit such Holder to sell such securities pursuant to Rule 144 without registration. 8. MISCELLANEOUS. (a) EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and commissions, brokerage commissions, taxes of any kind (including without limitation transfer taxes) and fees and expenses of counsel to any Holder, incurred in connection with the registrations, filings or qualifications described herein, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, the fees and disbursements of counsel for the Company, and the fees and disbursements incurred in connection with the opinion and letter described in paragraph 4(h) hereof shall be borne by the Company. (b) AMENDMENT; WAIVER. Any provision of this Agreement may be amended only pursuant to a written instrument executed by the Company and the Holders of at least 51% of the unpaid principal amount of the Debentures then outstanding. Any waiver of the provisions of this Agreement may be made only pursuant to a written instrument executed by the party against whom enforcement is sought. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder and the Company. (c) NOTICES. Any notice, demand or request required or permitted to be given by the Company or a Holder pursuant to the terms of this Agreement shall be in writing and shall be deemed given (i) when delivered personally or when sent by verifiable facsimile transmission (with a hard copy to follow), (ii) on the next business day after timely delivery to a nationally-recognized overnight courier and (iii) on the third business day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows: If to the Company: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attn: Chief Legal Officer Tel: 617-252-7500 Fax: 617-252-7553 11 12 and if to any Holder, at such Holder's address and facsimile number as such Holder shall have furnished to the Company in writing either in the Purchase Agreement or otherwise in accordance with this paragraph 8(c). (d) TERMINATION. This Agreement shall terminate on the earlier to occur of (a) the end of all Registration Periods and (b) the date on which all of the Registrable Securities have been publicly distributed; but any such termination shall be without prejudice to (i) the parties' rights and obligations arising from breaches of this Agreement occurring prior to such termination and (ii) the indemnification obligations under this Agreement. (e) ASSIGNMENT. The rights of a Holder hereunder shall be assigned automatically to any transferee of the GMO Debenture or GGD Debenture, as the case may be, then held by such Holder as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee, (ii) immediately following such transfer, the further disposition of Registrable Securities is restricted under the Securities Act or under state securities laws, (iii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof and (iv) such transfer is made in accordance with the applicable requirements of the Purchase Agreement. (f) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws provisions thereof. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. (h) HEADINGS. The headings in this Agreement are used for convenience only and are not to be construed in construing or interpreting this Agreement. 12 13 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first-above written. GENZYME CORPORATION By: /s/ David J. McLachlan ---------------------- Name: David J. McLachlan Title: Executive Vice President, Finance, Chief Financial Officer PURCHASER NAME: Tribeca Investments, L.L.C. --------------------------- By: /s/ William H. Heyman --------------------- Name: William H. Heyman Title: CEO PURCHASER NAME: Swiss Bank Corporation, London Branch ------------------------------------- By: /s/ Kipp K. Schrage ------------------- Name: Kipp K. Schrage Title: Swiss Bank Corp (London Branch) attorney in fact /s/ George W. Locasto - --------------------- George W. Locasto Swiss Bank Corp (London Branch) attorney in fact PURCHASER NAME: Stark International ------------------- By: /s/ Michael A. Roth ------------------- Name: Michael A. Roth Title: Managing Member PURCHASER NAME: SoundShore Partners L.P. ------------------------ By: /s/ Thomas J. Leishman ---------------------- Name: Thomas J. Leishman Title: Vice President* *BY: AIG International Asset Management Ltd as General Partner of SoundShore Partners L.P. PURCHASER NAME: Shepherd Investments International, Ltd. ---------------------------------------- By: /s/ Michael A. Roth ------------------- Name: Michael A. Roth Title: General Member of Investment Mgr. Staro Asset Management PURCHASER NAME: Proprietary Convertible Investment Group Inc. --------------------------------------------- By: /s/ Allan Weine --------------- Name: Allan Weine Title: Vice-President PURCHASER NAME: Oracle Partners, L.P. --------------------- By: /s/ Larry N. Feinberg --------------------- Name: Larry N. Feinberg Title: General Partner PURCHASER NAME: Och-Ziff Capital Management, L.P. --------------------------------- By: /s/ Daniel S. Och ----------------- Name: Daniel S. Och Title: Managing Member of Och-Ziff Associates, L.L.C. General Partner of Och-Ziff Capital Management, L.P. PURCHASER NAME: Employers Reinsurance Corporation --------------------------------- By: /s/ Ross S. Margolies --------------------- Name: Ross S. Margolies Title: Director 13 EX-11 10 COMPUTATION OF WEIGHTED AVERAGE SHARES 1 GENZYME CORPORATION AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES USED IN COMPUTING INCOME PER SHARE AMOUNTS (Unaudited, in thousands)
THREE MONTHS ENDED ---------------------------------------------- SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 --------------------- -------------------- COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARES DILUTION SHARES DILUTION ------ -------- ------ -------- GENZYME GENERAL STOCK: Common stock outstanding, beginning of period ............... 76,399 76,399 69,319 69,319 Weighted average common stock issued during the period....... 437 437 121 121 Weighted average common stock assuming exercise of options ...................................... 2,603 3,020 -- -- Weighted average common stock assuming exercise of warrants ..................................... 7 9 -- -- Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes .................... -- -- -- -- ------ ------ ------ ------ Weighted average number of shares outstanding ............... 79,446 79,865 69,440 69,440 ====== ====== ====== ======
NINE MONTHS ENDED --------------------------------------------------- SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 ----------------------- ----------------------- COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARES DILUTION SHARES DILUTION ------ -------- ------ -------- GENZYME GENERAL STOCK: Common stock outstanding, beginning of period............ 75,537 75,537 62,372 62,372 Weighted average common stock issued during the period .. 646 646 5,183 5,183 Weighted average common stock assuming exercise of options .................................. 2,414 2,770 3,178 3,270 Weighted average common stock assuming exercise of warrants ................................. 7 11 2,291 2,431 Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes ................ -- -- -- 890 ------ ------ ------ ------ Weighted average number of shares outstanding ........... 78,604 78,964 73,024 74,146 ====== ====== ====== ======
EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF GENZYME CORPORATION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS INCLUDED IN THE FORM 10-Q FOR GENZYME CORPORATION DATED SEPTEMBER 30, 1997. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 143,943 33,494 119,328 0 146,932 478,273 507,117 118,118 1,274,656 111,018 0 0 0 973 985,374 1,274,656 442,276 448,955 0 170,622 222,427 5,382 8,543 42,445 19,252 23,193 0 0 0 23,193 0 0 Genzyme Corporation has one class of common stock which currently consists of three series of common stock -- Genzyme General Division Common Stock ("GGD Stock"), Genzyme Tissue Repair Division Common Stock ("GTR Stock") and Genzyme Molecular Oncology Division Common Stock ("GMO Stock"). Earnings (loss) per share is reported separately for each series of common stock. For the three and nine months ended September 30, 1997, primary EPS and fully diluted EPS attributable to GGD Stock were $0.31 and $0.88, and $0.30 and $0.87, respectively. Loss per share for GTR Stock for the three and nine months ended September 30, 1997 was $(0.72) and $(2.47), respectively. Loss per share attributable to GMO stock for the three and nine months ended September 30, 1997 was $(1.00) and $(3.29), respectively.
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